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Income Tax Appellate Tribunal, ‘’ B’’ BENCH, AHMEDABAD
Before: SHRI RAJPAL YADAV & SHRI WASEEM AHMED
Consolidated Appeals (2)
आदेश/O R D E R PER WASEEM AHMED ACCOUNTANT MEMBER:
The captioned seven appeals have been filed at the instance of Revenue against the respective orders of the Learned Commissioner of Income Tax (Appeals), Ahmedabad arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year as mentioned in the cause title.
First we take ITA No.3437/Ahd/2002 for A.Y. 1993-1994 an appeal by the Revenue. The Revenue has taken following grounds: “1. The Ld. CIT(A) has erred in law and on facts in deleting the addition made on account of interest payment of Rs. 9,32,57,533/-. 2. The Ld. CIT(A) has erred in law and on facts in deleting the addition towards Modvat Credit of Rs. 8,14,088/- being unutilized. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. 4. It is, therefore, prayed that the order of the CIT(A) may be set aside and that of the Assessing Officer be restored to the above extent.” 3. When the matter was called for hearing, none appeared on behalf of the assessee to represent the case. The hearings were adjourned from time to time and notices were also sent but no response. Thus, finally we proceed to decide the appeal ex-parte qua the assessee, after hearing the Ld. D/R and considering the materials available on record.
The assessee is a company in liquidation. It was engaged in the business of manufacture of chemicals. It submitted return on 31.12.1993 declaring a loss of Rs. 11,20,99,020/- only. The Ld. AO completed assessment u/s 143(3) at a loss of Rs. 1,21,19,940/- after making various additions. Against the order of Ld. AO, the assessee filed appeal to Ld. CIT(A) who allowed part-relief. Against the order of CIT(A), the Revenue is now in appeal before us. We proceed to decide all Grounds one by one.
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Ground No. 1 – Addition of interest of Rs. 9,32,57,533/-:
In this Ground the Revenue has claimed that the ld. CIT(A) has wrongly deleted the addition made by Ld. AO on account of interest payment of Rs. 9,32,57,533/- only.
The Ld. AO observed that the assessee has incurred interest expenditure of Rs. 9,32,57,933/- on the funds borrowed for setting up two plants and claimed the same as deduction in computing business income. The Ld. AO further observed that the interest is related to the pre-operative period. While the assessee has claimed deduction on the premise that the borrowed funds have been utilized for extension of business and therefore the same is allowable as deduction, the Ld. AO carried a view that the interest has been incurred for acquisition of capital assets of a new undertaking and hence the same is disallowable. Therefore, the added the same to the total income of the assessee.
The Ld. CIT(A) deleted this addition vide Para No. 3 of his order which is extracted as under:
“3. The first ground relates to the claim of Rs. 10,04,17,608/- as revenue expenditure which were treated as pre-operative expenses in the books of accounts. The facts of the case, the argument of the appellant and the basis of disallowance have been dealt in detail by A.O. in the assessment-order. The similar view was before CIT(A) in the appellant’s own case for A.Y. 1994-95. It is noticed that there is no material change in the facts and the arguments taken by appellant. After detailed discussion the learned CIT(A) allowed interest and front fees for obtaining interest as deductible expenditure. However, after considering various judgements cited by appellant and on facts, the learned CIT(A) held that other expenses incurred on legal fees, insurance, postage, travelling etc. are not admissible as deduction u/s 37 of the I.T. Act. Respectfully following the decisions of CIT(A) in earlier years, the A.O. is directed to allow deduction of Rs. 9,32,57,533/- paid by way of interest. The decision of treating the remaining expenses of Rs. 71,60,075/- as capital expenditure, is upheld. The A.O. should look into consequential working of depreciation.” 8. Being aggrieved by the order of the ld. CIT-A, the Revenue is in appeal before us. The ld. DR vehemently supported the order of the AO.
We have heard the ld. DR and perused the materials available on record. We also observe that against the decision of CIT(A) in A.Y. 1994-95, the Revenue went in appeal before Ahmedabad Bench of tribunal through ITA No. 2584/A/98, which
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was decided on 24.02.2006 in favour of the assessee. In Para No. 7 of the order, the Bench held as under:
“We have carefully considered the submissions of Id. DR and carefully gone through the orders of Assessing Officer as well as CIT(A). Hon'ble Gujarat High Court in the case of CIT Vs. Alembic Glass Industries Ltd. has held that where there is a complete inter-connection, inter-lacing and inter-dependence of the old and new units of manufacture, the new unit did not constitute a new business but was an establishment of the existing business; hence interest incurred on capital borrowed for establishment of new unit was allowable. The CIT(A) has clearly found that assessee company already was manufacturing four types of acids and establishment of new unit was for the expansion of already existing business. He also finds that there was unity and commonness of administration, management, finance, production etc. for the existing business and the expanded business. These findings of CIT(A) have not been controverted by revenue by bringing any material on record. In this view of the situation, following the aforementioned decision of Hon'ble Jurisdictional High Court in the case of Alembic Glass Industries Ltd. (supra), we find that interest has rightly been held allowable by ld. CIT(A). We may mention here that this decision of Hon'ble Jurisdictional High Court has been followed by Hon'ble Gujarat High Court in the latest decision in the case of DCIT Vs. Core Health Care Ltd. 251 (TR 61 (Guj) wherein it has been held that interest paid towards borrowing made for the purpose of acquiring new machineries in an existing business though pertaining to the period prior to commencement of production was allowable as deduction u/s 36(1) (iii). Their Lordships have further considered Explanation 8 to section 43(1) of the Act and found that the said explanation nowhere provides that interest pertaining to the period prior to the asset being first put to use has necessarily to be capitalised and will not be allowed as deduction u/s 36(1)(iii). Thus the remaining aspect considered by Assessing Officer regarding application of Explanation 8 as discussed by Assessing Officer at page-6 of the assessment order has also been taken into consideration by Hon'ble Jurisdictional High Court. The ratio of decision of Gujarat High Court in the case of DCIT Vs. Core Health Care Ltd. (supra) will have full application to the issue raised by revenue in all these three appeals and the issue is thus covered clearly in favour of assessee. In this view of the situation, we hold that Id. CIT(A) was right in allowing the claim of assessee regarding interest incurred for the purpose of new unit and to that extent there is no infirmity in his order. Therefore, common ground of revenue for all these three years is liable to be dismissed and is dismissed.”
9.1 Therefore the issue raised by the Revenue in this Ground is squarely covered by the above decision in assessee’s own case against the Revenue and in favour of assessee. The learned DR has also not brought anything on record at the time of hearing contrary to the finding of the learned CIT-A. Hence we conclude that the CIT (A) has rightly allowed the deduction of interest of Rs. 9,32,57,533/- only. Therefore this Ground of appeal of the Revenue is dismissed.
Ground No. 2 – Addition of unutilized modvat credit of Rs. 8,14,088/-:
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In this Ground the Revenue has claimed that the Ld. CIT(A) has erred in deleting the addition towards unutilized Modvat credit of Rs. 8,14,088/- only.
The Ld. AO has observed that there was an amount of unutilized Modvat credit of Rs. 8,14,088/- on the last day of the financial year. He further observed that the assessee is paying excise duty on the raw materials purchased, on which Modvat credit is available. He also observed that the Modvat credit should be reduced from the cost of raw materials which the assessee has not done. On this basis, he made an addition of Rs. 8,14,088/-.
The Ld. CIT(A) deleted this addition vide Para No. 4 of his order, which is reproduced as under:
“4. The second ground related to deduction of raw material cost from unutilized modvat credit of Rs. 8,14,088/- is also covered by the decision of learned CIT(A) vide para 13, in appellant’s own case for A.Y. 94-95. It is seen that the appellant has been following consistent method of accounting in this regard. For the reasons mentioned by CIT(A) in the order for A.Y. 94-95, the addition made by A.O. on this account is deleted.” 13. Being aggrieved by the order of the ld. CIT-A, the Revenue is in appeal before us. The ld. DR vehemently supported the order of the AO.
We have heard the ld. DR and perused the materials available on record. We observe that against the decision of CIT(A) in A.Y. 1994-95, the Revenue went in appeal before Ahmedabad Bench of tribunal through ITA No. 2584/Ahd/98 which was decided on 24.02.2006. In Para No. 16 of the order, the Bench held as under:
“We have carefully considered the submission of Id. DR and carefully gone through the order of Assessing Officer and CIT(A) in this regard. It has been held that Hon'ble Bombay High Court in the case of CIT Vs Indo Nippon Chemical Co. Ltd. 245 ITR 384 that Modvat credit is relatable to the raw material consumed and therefore, the Assessing Officer was wrong in calculating Modvat credit on the basis of purchase cost and in applying proviso to section 145(1). This decision of Hon'ble Bombay High Court has been approved by Hon'ble Supreme Court in the case of CIT Vs. Indo Nippon Chemicals Ltd 261 TR 275 (SC). Their Lordships have held that whatever method the Assessing Officer adopts after invoking section 145, the method has to be consistent with accepted principles of accountancy. It is not open to the Assessing Officer to treat outgoings as income under section 145 of the I. T.Act, 1961. It is not possible to accept the view of the Assessing Officer that merely because the Modvat credit is irreversible credit available to the manufacturers upon purchase of duty paid raw material that would amount to income which was liable to be taxed under the Act. The assessee have all uniformly adopted the “net method" namely, valuing the raw materials at the purchase price minus Modvat credit. This method was also adopted by them while
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valuing the unconsumed raw materials and the work-in-progress at the end of the year. Their Lordships found that the method of assessee for valuation was not wrong. They further found that AO. adopted the "gross method” at the time of purchase, and the "net method" of valuation at the time of valuation of the stock on hand, this method was found to be wholly erroneous as much as they found that Assessing Officer assumed that the income, to the extent of Modavat credit on the unconsumed raw material, was generated, which was not reflected in the accounts and thus, attempted to bring it to charge under the Act. Thus, their Lordships of Hon'ble Supreme Court found that High Court has rightly held the issue in favour of the assessee. Now in view of these decisions it has to be ascertained whether the assessee has adopted uniformly "net method" namely valuing the raw materials at the purchase price minus Modavat credit and the same method is adopted by him while valuing the unconsumed raw material and the work in progress at the end of the year. Unless it is ascertained this issue cannot be decided. In this view of the situation, we consider it proper and justify to restore this issue to the file of Assessing Officer for ascertainment of these facts in the light of aforementioned decisions of Hon'ble Bombay High Court and Hon'ble Supreme Court in the case of Indo Nippon Chemicals Co. Ltd. (supra). We direct accordingly. This ground of revenue is allowed for statistical purposes.” 14.1 In view of the above, this Ground is squarely covered by the above decision in assessee’s own case. Following the same view, we restore the issue to the file of Ld. AO for fresh adjudication as per law. The Ld. AO shall ascertain whether the assessee has followed “net method” or “gross method” and based on, he will decide the issue afresh as per law. Therefore this Ground of the Revenue is allowed for statistical purpose.
Ground No. 3:
This Ground is merely supportive to the Ground No. 1 and 2 and therefore does not require separate adjudication. Hence the same is dismissed being infructuous.
Ground No. 4:
This Ground is general in nature and does not require adjudication and the same dismissed being general in nature.
In the result, the appeal of the Revenue is partly allowed for statistical purposes.
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Coming to the next appeal of the Revenue bearing ITA No. 3208/Ahd/2003 for A.Y. 1997-98. The revenue has raised the following grounds of appeal:
“1. The Ld. C.I.T.(A) has erred in law and on facts in deleting G.P. addition of Rs. 40,75,00,000/ -.
The Ld. C.I.T. (A) has erred in law and on facts in deleting the disallowance of interest of Rs. 35,65,05,757/ -.
The Ld. C.I.T. (A) has erred in law and in facts in deleting the disallowance of interest of Rs. 21,14,00, 000/ -.
The Ld. C.I.T. (A) has erred in law and on facts in directing to delete the disallowance of Rs. 2,01,78, 813/ -, made under section 43B of the I.T. Act, 1961, for non-production of proof for actual payment for the items of interest payment to financial Institution, P.F ., ESI and Bonus.
The Ld. C.I.T. (A) has errred in law and on facts in directing to delete the disallowance of Rs. 2,67,99,861/- claimed to be import duty benefit accounted for during the year without any evidence.
The Ld. C.I.T. (A) has erred in law and on facts in directing to allow depreciation on the additions to the machineries and plant without producing the proof for the same.
On the facts and in the circumstances of the case, the ld. C.I.T.(A) ought to have upheld the order of the Assessing Officer.
It is, therefore, prayed that the order of the ld. C.I.T.(A) may be set aside and that of the Assessing Officer be restored to the above extent.”
The assessee filed its return of income on 30.11.1997 declaring a loss of Rs. 113,10,21,790/-. The Ld. AO completed the assessment u/s 143(3) at a loss of Rs. 8,29,19,860/- after making various additions.
Ground No. 1 – G.P. addition of Rs. 40,75,00,000/-:
In this Ground, the revenue has claimed that the CIT(A) has wrongly deleted the Gross-Profit addition of Rs. 40,75,00,000/- made by Ld. AO.
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During assessment proceeding, the Ld. AO issued notice u/s 142(1) and required the assessee to produce the books of accounts and documents. In response, the assessee submitted that there was a fire on 18.08.1998 at the office of assessee due to which the books of accounts and documents were destroyed. Therefore, the assessee presented its inability to produce books of account and documents. However, the Ld. AO did not accept this submission of the assessee on the reasoning that the assessment for immediate preceding assessment year i.e. assessment year 1996-97 was completed on 31.03.1999 which was framed after the outbreak of fire on 18.08.1998 and the assessee produced books of account for that assessment-year before AO. The Ld. AO, therefore, opined that the fire cannot be so selective as to destroy the books of account of assessment- year 1997-98 but not those of assessment-year 1996-97. On this basis, the Ld. AO disbelieved the submission of assessee, rejected books of account u/s 145 and estimated Gross-Profit. While making this estimation, the Ld. AO observed that during the assessment-year under consideration, the assessee has shown a loss of Rs. (-) 77 lakhs on a turnover of Rs. 158.67 crores which yields 4.92% loss, whereas in the immediately preceding year i.e. assessment-year 1996-97, the assessee had declared G.P. of 25.20%. Hence the Ld. AO applied G.P. rate of 25.20% of preceding assessment-year for the year under consideration and made an addition of Rs. 40,75,00,000/-.
Aggrieved, assessee preferred an appeal before the ld. CIT-A who deleted this addition vide Para No. 6.3.2 of his order by observing as under:
“6.3.2 I am in complete agreement with the appellant that the action of the Assessing Officer to make such a huge estimate in utter disregard to the basic principles which govern the best judgment assessment as also the material and evidence on record is arbitrary and unwarranted in view of the following facts: (1) The appellant had filed audited balance sheet along with Director's report for the assessment year under appeal. The appellant had further filed various statements in support of its claim for deduction of expenses which have been overlooked by the A.O. The A.O. has admitted the fact that the appellant had filed tax audit report under Section 44AB of the Act. The appellant being a public limited company its accounts are subject to audit not only by Company auditors but by Tax auditors. The accounts have been maintained by the appellant in the proper and regular manner which could be substantiated FIRSTLY by the fact that in the past the accounts are maintained in the same manner have been duly accepted. SECONDLY
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the appellant being a Limited Company its accounts are audited by Company Auditors as well as tax auditors under Section 44AB of the Act. (2) When the auditors have duly certified the accounts, the presumption is that the accounts are maintained in accordance with the well-established principles laid down in the accounting standards prescribed by the Institute of Chartered Accountants, it is not open to the Assessing Officer to reject this material piece of evidence. (3) Thirdly, the A.O. has not disputed the fact of fire having taken place in as much as the evidence led by the appellant in this regard has not been disputed, hence the inference drawn is not only arbitrary but unwarranted namely that the fire cannot be selective etc. (4) Fourthly, the A.O. apart from the fact of fire had failed to take note of the fact that heavy cyclone in Saurashtra region on 18th June, 1996, coupled with heavy rain damaged company’s plant and surrounding areas were also flooded. On a public interest litigation, the Hon' ble High Court of Gujarat had issued closure order for the company’s Mardianagar Unit on 11th July, 1996. On a special leave petition, the Hon’ ble Supreme Court appointed a Joint Inspection Team (JIT) consisting of NEERI and CPCB to submit its report. Based on the report of Joint Inspection Team confirming compliance of JIT recommendations, the Hon’ ble Supreme Court permitted the company to restart all the plants of its Mardianagar unit by its order dated 13th January, 1997. The company restarted its operations from 22nd January, 1997. Thus in view of the above position, the operations of the company were affected due to closure of its Mardianagar unit for almost more than half of the year. Now this material fact though brought to the notice of the A.O., has been completely ignored, namely, the closure of factory from 11.7.1996 to 13.1.1997 due to closure order of the Hon' ble Gujarat High Court and the operation was restarted only on 22.1.1997. The fact that there was no production during the above period is neither disputed nor denied but conveniently ignored by the A.O. Therefore, reliance on fact relating to gross profit disclosed in the preceding year cannot form the sole basis for estimate of gross profit during the year under appeal in as much as the facts are distinct and different. (5) Non-production of books of accounts due to calamity like fire cannot be held against the assessee, the adverse inference drawn by the A.O. that fire cannot be selective etc. to say the least is the most perverse and unwarranted observations and finding in the context of evidence and material placed before the A.O. (6) The appellant had invited attention of the A.O. to the decision of the Delhi High Court in the case of Jay Engineering Works Ltd. The principle laid down in that decision is also conveniently ignored by the A.O. The facts of this case are in pari materia with the facts of the appellant's case. In view of the above findings / discussion and decision of the Hon'ble Delhi High Court in line case of Addl. CIT vs. Jay Engineering Works (supra), it is held that the Assessing Officer was not justified in rejecting the books results of the appellant company and in estimating the Gross Profit of Rs. 40.75 crores. I hereby direct to delete the addition of Gross Profit of Rs. 40.75 crores.”
Being aggrieved by the order of the ld. CIT-A, the Revenue is in appeal before us.
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Before us, the Ld. D/R relied upon the assessment-order and argued that the Ld. AO has made addition perfectly.
We have perused the assessment-order as well as order of CIT(A) and heard the arguments of ld. DR. After a careful consideration, we find that the Ld. AO has rejected book-results and made the addition due to the single reason that the assessee has not produced books of account and documents. But the assessee has fully explained that owing to the outbreak of fire, the books and documents were destroyed. The assessee has also given complete evidences of the fire having taken place. We are of the considered view that the Ld. AO cannot reject book-results merely on his own belief or disbelief without considering the factual submissions made by the assessee. It is also noteworthy that the assessee is a listed company and its books of account were duly audited by statutory auditors, internal auditors, tax auditors and the financial results are published to investors as well as submitted to various authorities. The Ld. CIT(A) has given due consideration the overall position of the facts and rightly held that the Ld. AO was not justified to reject the book-results of the assessee. We agree with the findings noted and conclusions taken by the Ld. CIT(A). Therefore, this Ground of the Revenue is dismissed.
Ground No. 2 – Disallowance of interest of Rs. 35,65,05,757/-:
In this Ground the Revenue has claimed that the CIT(A) has wrongly deleted the addition made by Ld. AO on account of interest payment of Rs. 35,65,05,757/-
The Ld. AO observed that the assessee has incurred interest expenditure of Rs. 35,65,05,757/- on the funds borrowed for setting up its units and claimed the same as deduction in computing business income. He further observed that this interest is related to the pre-operative period and the assessee has capitalized in books of account and claimed as deduction while computing taxable income. He further observed that the details of pre-operative expenses including this interest were not available as the books of account were destroyed due to fire. The assessee made detailed submissions on all these aspects including the fact that the borrowed
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funds have been utilized for extension of business and therefore the same is allowable as deduction. However, the Ld. AO disallowed the deduction.
The Ld. CIT(A) deleted this addition vide Para No. 7.2 and 7.3 of his order by observing as under:
“7.2 The appellant submitted at the outset, that the allowance of claim of appellant under section 36(1)(iii) of the Act qua pre-operative expenditure is no longer res integra so far as the State of Gujrat is concerned. The issue is squarely covered by the recent decision of the Hon'ble Gujarat High Court in the case of Dy. CIT Vs. Core. Healthcare Ltd. (251 ITR 61) (Guj). The appellant also brought to my notice the page nos. 197 to 213-A of the paper- book filed alongwith its written submission dated 24th December, 2001, wherein the details of interest expenses, corroborative evidences of payment proofs etc. are also given. The appellant also brought to my notice the appeal orders of my predecessors for A. Y. 1994-95 to A. Y. 1996-97, wherein, in case of the appellant itself, such interest expenses have been allowed. Further, it is submitted by the appellant that on similar issue the Hon'ble ITAT, Ahmedabad, Bench-C in the case of Vadilal Dairy International Ltd., Ahmedabad vs. DCIT(Asstt.), Special Range-9, Ahmedabad (ITA No. 500/Ahd/97) for A.Y. 1993-94 dated 15-6-1998, has allowed the interest expenses. 7.3 I have carefully considered the facts of the case, discussion made in the assessment order, and written submissions made by the appellant during the appeal hearing. I have also gone through the various judgments, referred to above, relied upon by the appellant company. Respectfully following the decision of Hon'ble Gujarat High Court in the case of by. CIT Vs. Core Healthcare Ltd. (251 ITR 61) (Guj), I am in complete agreement with my predecessors and accordingly, I held that the disallowance of interest of Rs. 35,65,05,757/- is deleted.” 29. Being aggrieved by the order of the ld. CIT-A, the Revenue is in appeal before us.
Before us, the Ld. D/R relied upon the assessment-order and argued that the Ld. AO has made addition perfectly.
We have perused the assessment-order as well as order of CIT(A). We also observe that against the decision of CIT(A) in A.Y.1994-95, the Revenue went in appeal before Ahmedabad Bench of tribunal through ITA No. 2584/Ahd/98, which was decided on 24.02.2006. In Para No. 7 of the order, the Bench held as under:
“We have carefully considered the submissions of Id. DR and carefully gone through the orders of Assessing Officer as well as CIT(A). Hon'ble Gujarat High Court in the case of CIT Vs. Alembic Glass Industries Ltd. has held that where there is a complete inter-connection, inter-lacing and inter-dependence of the old and new units of manufacture, the new unit did not constitute a new business but was an establishment of the existing business; hence interest incurred on capital borrowed for establishment of new unit was allowable. The
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CIT(A) has clearly found that assessee company already was manufacturing four types of acids and establishment of new unit was for the expansion of already existing business. He also finds that there was unity and commonness of administration, management, finance, production etc. for the existing business and the expanded business. These findings of CIT(A) have not been controverted by revenue by bringing any material on record. In this view of the situation, following the aforementioned decision of Hon'ble Jurisdictional High Court in the case of Alembic Glass Industries Ltd. (supra), we find that interest has rightly been held allowable by ld. CIT(A). We may mention here that this decision of Hon'ble Jurisdictional High Court has been followed by Hon'ble Gujarat High Court in the latest decision in the case of DCIT Vs. Core Health Care Ltd. 251 (TR 61 (Guj) wherein it has been held that interest paid towards borrowing made for the purpose of acquiring new machineries in an existing business though pertaining to the period prior to commencement of production was allowable as deduction u/s 36(1) (iii). Their Lordships have further considered Explanation 8 to section 43(1) of the Act and found that the said explanation nowhere provides that interest pertaining to the period prior to the asset being first put to use has necessarily to be capitalised and will not be allowed as deduction u/s 36(1)(iii). Thus the remaining aspect considered by Assessing Officer regarding application of Explanation 8 as discussed by Assessing Officer at page-6 of the assessment order has also been taken into consideration by Hon'ble Jurisdictional High Court. The ratio of decision of Gujarat High Court in the case of DCIT Vs. Core Health Care Ltd. (supra) will have full application to the issue raised by revenue in all these three appeals and the issue is thus covered clearly in favour of assessee. In this view of the situation, we hold that Id. CIT(A) was right in allowing the claim of assessee regarding interest incurred for the purpose of new unit and to that extent there is no infirmity in his order. Therefore, common ground of revenue for all these three years is liable to be dismissed and is dismissed.”
31.1 From para No. 7.2 and 7.3 of the order of CIT(A) cited above, we observe that the assessee has filed complete details of interest expenditure in the Paper- Book and in Written Submission filed before Ld. CIT(A). Hence, the details of interest expenditure are available. On the allowability of deduction u/s 36(1)(iii), we find that the case of assessee is squarely covered by the above cited decision of this this tribunal in assessee’s own case against the Revenue and in favour of assessee. Hence we conclude that the CIT(A) has rightly allowed the deduction of interest of Rs. 35,65,05,757/-. Therefore this Ground of appeal of the Revenue is also dismissed.
Ground No. 3 – Disallowance of interest of Rs. 21,14,00,000/-:
In this Ground the Revenue has claimed that the ld. CIT(A) has wrongly deleted the addition made by Ld. AO on account of interest disallowance of Rs. 21,14,00,000/- only.
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Facts qua this issue are such that the assessee had claimed total interest expenditure of Rs. 43.39 crore in computing business income as per Schedule-13 of the audited accounts filed with the return. The Ld. AO observed that the assessee has not given any details of interest payment, namely name and address of the payee, reasons for raising the loan, nature of loan transaction, whether interest is actually paid or not etc. Therefore, the Ld. AO determined the payment of interest qua percentage of turnover in the immediately preceding year. Since percentage of the preceding year was 125% of the turnover, the Ld. AO applied the same percentage to the current year and made a disallowance of Rs. 21.14 crores.
The Ld. CIT(A) deleted this addition vide Para No. 15.2 and 15.3 of his order which extracted as under: “15.2 The appellant submitted that the A.O. has made the impugned disallowance merely to make a high-pitch assessment disregarding the basic principles which govern the claim for deduction of expenditure. It appears that the A.O. is either oblivious or ignorant of basic principles governing the claim for indirect expenses like interest. The appellant submitted that Assessing Officer failed to appreciate that the appellant company has given full details of interest payment. The appellant referred the para no. 2.1 at page no. 57 of the assessment order, where it is stated that the authorised representative has filed the comparative figures of the expenditure of last year. This statement includes full details of interest expenses alongwith the names of the banks / institutions etc. The appellant stated again; the Assessing Officer has made the impugned disallowance keeping the closed eyes towards the details given by the appellant. It was further submitted that the A.O. has not even taken care to give the show cause to the appellant company so that the appellant could have drawn his kind to the details given, and therefore, also the disallowance has been made ignoring all the principles of natural justice. Without prejudice to above, it was further submitted by the appellant that the A.O. erred in facts and law in making the calculation of disallowable interest on the basis on turnover of the appellant company. The Assessing Officer erred in appreciating the fact that the interest expense depends on the loan amount and not amount of turnover of the company. Thus, the disallowance made is perverse and it was prayed by the appellant to delete the disallowance. For the details of interest and its corroborative proof, the appellant also drew my attention to the page nos. 239 to 241 of the paper-book filed alongwith its written submission dated 24th December, 2001. My attention was also drawn to page no. 127 of the said paper-book wherein the reasons for increase in the interest expenses are explained in detail. 15.3 I have carefully considered the facts of the case, discussion made in the assessment order, and written submissions made by the appellant during the appeal hearing. I have no hesitation to hold that the Assessing Officer has acted very prejudicially without complying the principles of natural justice and in a haste and zeal to make huge additions and
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disallowances, he lost sight of the basic financial and tax principles which is clearly apparent on this issue of disallowance of interest on the basis of turnover. I direct to delete the disallowance of interest expenses of Rs. 21,14,00,000/-.” 35. Being aggrieved by the order of the learned CIT-A, the revenue is in appeal before us.
Before us, the Ld. D/R relied upon the assessment-order.
We have considered the assessment-order as well as the categorical findings made by Ld. CIT(A). The Ld. CIT(A) has clearly found that all relevant details were available before the Ld. AO who has not considered those details. In his findings, the Ld. CIT(A) has also referred to the Pages Nos. of the Paper-Book filed by the assessee before him, on which the details were available. Being so, we find that the CIT(A) has rightly allowed the deduction of interest of Rs. 21,14,00,000/-. The learned DR at the time of hearing has also not brought anything contrary to the finding of the learned CIT-A. Therefore, this Ground of appeal of the Revenue is also dismissed.
Ground No. 4 – Disallowance of Rs. 2,01,78,813/- u/s 43B:
In this Ground the Revenue has claimed that the CIT (A) has wrongly deleted the disallowance Rs. 2,01,78,813/- made by Ld. AO u/s 43B of the Act.
The assessee submitted a certificate of M/s B.A. Bedawala & Co., Chartered Accountants, dated 29.11.1997 along with the Return of Income, in support of payments made towards interest to financial Institutions. P.F., ESl etc. covered u/s 43B. However, the Ld. AO disregarded this certificate and made disallowance of Rs. 2,01,78,813/- for not filing proofs of actual payment.
The Ld. CIT(A) deleted this addition vide Para No. 16.1 of his order due to the fact that the assessee has already filed the certificate of M/s B.A. Bedawala & Co., Chartered Accountants, dated 29.11.1997 along with the Return of Income. The Ld. CIT(A) has also observed that the Ld. AO has ignored this certificate without brining any material to establish that the certificate was not acceptable. He also
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observed that the certificate of Chartered Accountant is acceptable in view of Circular No. 601 dated 04.06.1991. On this basis, the Ld. CIT(A) deleted the disallowance.
Being aggrieved by the order of the ld. CIT-A, the Revenue is in appeal before us.
Before us, the Ld. D/R relied upon the assessment-order and argued that the Ld. AO has made addition perfectly.
We have perused the assessment-order as well as order of CIT(A). We find that the Ld. CIT(A) was correct in observing that certificate of Chartered Accountant is an admissible proof in view of Circular No. 601 dated 04.06.1991 and the Ld. AO has not found anything contrary to the facts in the certificate. Without finding anything wrong, the Ld. AO has made addition arbitrarily and therefore the same was rightly deleted by Ld. CIT(A). The learned DR at the time of hearing has also not brought anything contrary to the finding of the learned CIT-A. Therefore this Ground of appeal of the Revenue is also dismissed.
Ground No. 5 - Addition of Rs. 2,67,99,861/- in respect of import duty benefit:
In this Ground, the Revenue has claimed that the CIT(A) has wrongly deleted the addition of Rs. 2,67,99,861/- made by Ld. AO in respect of import duty benefit.
The facts qua this Ground are very simple. While completing assessment for the assessment-year 1995-96, the Ld. AO observed that the assessee has not included the import-duty-benefits valuing at Rs. 3,65,31,693/- in his income. The assessee’s stand for non-inclusion was that the import-duty-benefits were not crystallized. However, the AO was of the view that since the assessee followed accrual method of accounting, the income was taxable in the year of accrual. The assessee further contested this before Ld. CIT(A) but even Ld. CIT(A) supported the view of AO and finally an addition of Rs. 3,65,31,693/- was upheld in the
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assessment-year 1995-96. This way an income of Rs. 3,65,31,693/- had already been taxed in assessment-year 1995-96. Thereafter there was a need of corresponding reduction in subsequent years (i.e. the years in which the assessee had offered that income on crystallization basis) since there cannot be double taxation of same amount. Even while deciding appeal of succeeding Assessment Year 1996-97, the CIT(A) directed the Ld. AO to give the corresponding deduction of Rs. 97,31,832/- on crystallization basis to avoid double taxation. And therefore a reduction was given in Assessment Year 1996-97. Still there remained a balance amount of Rs. 3,65,31,693 (-) 97,31,832 = 2,67,99,861 which had crystallized in the year relevant to assessment-year 1997-98 i.e. year under consideration. Hence the assessee claimed reduction of Rs. 2,67,99,861/-. But the Ld. AO did not allow this reduction.
On appeal by the assessee, the Ld. CIT(A) accepted the claim vide Para No. 20.3 in his order which reads as under:
“20.3 I have carefully considered the facts of the case, discussion made in the assessment order, and written submissions made by the appellant during the appeal hearing. I have no hesitation to held that the Assessing Officer has acted very casually while passing the assessment order under consideration. The claim made by the appellant has been duly ignored. Agreeing with my predecessor, I hereby direct the A.O. to reduce the income of Rs. 2,67,99,861/-.”
Being aggrieved by the order of the ld. CIT-A, the Revenue is in appeal before us.
Before us, the Ld. D/R relied upon the assessment-order and argued that the Ld. AO has made addition perfectly.
We heard the contention of the Ld. DR and perused the material available on record. After considering the fact in totality we agree with the view taken by Ld. CIT(A) that the same amount cannot be taxed twice. Since the income of Rs. 2,67,99.861/- has already been taxed in Assessment-Year 1995-96 and the same amount is once again included in the income of assessment-year under
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consideration, leading to double taxation which is not warranted under the provision of the Act. Hence a deduction of Rs. 2,67,99,861/- has to be made and rightly so made by the Ld. CIT(A). We, therefore, confirm order of the Ld. CIT(A). Accordingly the ground of the appeal of the Revenue is hereby dismissed.
Ground No. 6 – Depreciation on additions to machineries and plant:
In this Ground the Revenue has claimed that the CIT(A) has wrongly given direction to allow the depreciation on additions to the machineries and plant.
During the course of assessment proceedings, the Ld. AO observed that the assessee has claimed depreciation on additions to the plant and machinery but the assessee did not produce the evidences in support of purchase of plant and machinery. The assessee submitted its inability to produce vouchers due to fire in the premises. However, the Ld. AO was not satisfied with the explanation and disallowed depreciation.
During appellate proceedings, the assessee made same submissions before the Ld. CIT(A). On a careful consideration, the Ld. CIT(A) found that in the fixed assets schedule appended to the Balance-Sheet, the details of additions to fixed assets have been given. Further, the appellant has also filed depreciation chart as per the Income-tax Act along with the return of income. Considering these facts, the Ld. CIT(A) held that the appellant cannot be penalized for its inability to produce the vouchers for additions to fixed assets on account of fire. Thus the ld. allowed the claim of depreciation.
Being aggrieved by the order of the ld. CIT-A, the Revenue is in appeal before us.
Before us, the Ld. D/R relied upon the assessment-order and argued that the Ld. AO has made addition perfectly.
We have heard the contention of the Ld. DR and given due consideration to the facts. As discussed earlier there was a fire in the premise of assessee due to
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which the books of accounts and documents were destroyed. However, the accounts of assessee are properly audited under Companies Act as well as Income-tax Act and the assessee has filed depreciations charts, duly audited by the auditors. The auditors have computed depreciation and certified. Due to absence of supporting records being destroyed by fire, it would be reasonable to accept that the depreciation has been rightly claimed. We, therefore, uphold the order of the ld. CIT(A) and direct the AO to delete the addition. Accordingly, this Ground of appeal of the Revenue is dismissed.
Ground No. 7:
This Ground is merely supportive to the Ground No. 1 to 6 and therefore does not require separate adjudication. Hence the same is dismissed being infructuous.
Ground No. 8:
This Ground is general in nature and does not require adjudication and the same dismissed being general in nature.
In the result appeal of revenue is dismissed.
Now coming to the appeal of Revenue bearing ITA No. 3209/Ahd/2003 for A.Y.1998-99. The Revenue has raised the following grounds:
“1. The Ld. C.I.T.(A) has erred in law and on facts in deleting G.P. addition of Rs. 3,35,00,000/ -. 2. The Ld. C.I.T. (A) has erred in law and on facts in directing to allow revenue expenses of Rs. 68,56,95,870/-. 3. The Ld. C.I.T. (A) has erred in law and on facts in directing to allow deferred revenue interest expenses of Rs. 5,05,12,605/-. 4. The Ld. C.I.T. (A) has erred in law and on facts in directing to allow sales commission of Rs. 3,72,76,900/-.
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The Ld. C.I.T. (A) has erred in law and on facts in directing to allow depreciation on the additions to the plant and machinery without producing the proof for the same. 6. The Ld. C.I.T. (A) has erred in law and on facts in directing to allow foreign tour expenses of Rs. 34,60,991/-. 7. The Ld. C.I.T. (A) has erred in law and on facts in directing to allow stamp paper expenses of Rs. 1,11,165/-. 8. The Ld. C.I.T. (A) has erred in law and on facts in directing to allow stamp paper expenses of Rs. 1,11,165/-. 9. On the facts and in the circumstances of the case, the ld. C.I.T.(A) ought to have upheld the order of the Assessing Officer. 10. It is, therefore, prayed that the order of the ld. C.I.T.(A) may be set aside and that of the Assessing Officer be restored to the above extent.” Ground No. 1 – G.P. addition of Rs. 3,35,00,000/-:
In this Ground the revenue has claimed that the CIT(A) has wrongly deleted the Gross-Profit addition of Rs. 3,35,00,000/- made by Ld. AO.
Facts qua this Ground are such that during the course of scrutiny, the Ld. AO called for books of account and documents but the assessee could not produce the same for the reason that they were destroyed by fire occurred on 18.08.1998. The Ld. AO, however, disbelieved the submission of assessee, rejected the book- results, estimated G.P. @ 25% as against G.P. of 23.19% declared by the assessee and thus made an addition of Rs. 3,35,00,000/-.
Aggrieved, assessee filed appeal to Ld. CIT(A). The Ld. CIT(A) deleted the addition fully. Being aggrieved by order of Ld. CIT(A), the revenue is not in appeal before us.
Before us, the Ld. D/R relied upon the assessment-order.
We observe that while completing assessment of A.Y. 1997-98, the Ld. AO made a similar addition of G.P. for the same reasoning of non-production of books of accounts and documents. Being aggrieved by order of Ld. AO, the assessee went in appeal to Ld. CIT(A). The Ld. CIT(A) deleted addition fully. Against the
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order of Ld. CIT(A), the revenue filed appeal to Ahmedabad Bench of ITAT. The Bench has decided appeal and deleted the addition by observing as under:
“5.5 We have perused the assessment-order as well as order of CIT(A). After a careful consideration, we find that the Ld. AO has rejected book- results and made the addition due to the single reason that the assessee has not produced books of account and documents. But the assessee has fully explained that owing to the outbreak of fire, the books and documents were destroyed. The assessee has also given complete evidences of the fire having taken place. We are of the considered view that the Ld. AO cannot reject book-results merely on his own belief or disbelief without considering the factual submissions made by the assessee. It is also noteworthy that the assessee is a listed company and its books of account were duly audited by statutory auditors, internal auditors, tax auditors and the financial results are published to investors as well as submitted to various authorities. The Ld. CIT(A) has given due consideration the overall position of the facts and rightly held that the Ld. AO was not justified to reject the book-results of the assessee. We agree with the findings noted and conclusions taken by the Ld. CIT(A). Therefore, this Ground of the Revenue is dismissed.” 64.1 The facts and reasoning of assessment year under consideration are exactly identical with the facts and reasoning of A.Y. 1997-98 except that there is a difference in figures involved. Therefore the issue raised by the Revenue in this Ground is squarely covered by the above decision in assessee’s own case for A.Y. 1997-98 against the Revenue and in favour of assessee vide paragraph number 25 of this order. Hence we conclude that the CIT (A) has rightly deleted the G.P. addition of Rs. 3,35,00,000/- made by Ld. AO. Therefore this Ground of appeal of the Revenue is dismissed.
Ground No. 2 – Disallowance of revenue expenses of Rs. 68,56,95,870/-:
In this Ground the revenue has claimed that the CIT(A) has erred in directing to allow deduction of revenue expenses of Rs. 68,56,95,870/-.
Facts qua this ground are such that the assessee incurred several revenue expenses aggregating to Rs. 1,03,79,50,500/-. Complete details of these expenses are available in Annexure-1 to the Assessment-Order and also narrated by Ld. CIT(A) in Para No. 9.1 of the order. These details are not being re-produced here
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for the sake of brevity but the expenses are broadly in the nature of (i) raw material cost, (ii) manufacturing expenses, (iii) administrative expenses, (iv) expenses on staff and (v) financial charges. Out of the expenditure of Rs. 1,03,79,50,500/-, a sum of Rs. 35,22,54,630/- was ascertained as disallowance u/s 43B. The remaining amount came to Rs. 68,56,95,870/- for which the assessee claimed effective deduction. The Ld. AO has disallowed deduction on the ground that these expenses have been incurred for new projects. But the assessee had claimed deduction on the ground that the new projects have started production during the year and sales have also been made. In support to production and sales, the assessee also submitted several evidences.
The Ld. CIT(A) has allowed deduction vide Para No. 9.1 of his order, which is extracted below: “The Assessing Officer stated that apart from the above statement, the assessee has kept a note below the statement of total income and stated that the new project has started its production and sales have also been effected during the year. Therefore, the assessee claimed the expenditure on new plant as revenue expenses putting the note as under:- “NOTE:-3 During the year, the Company has started the production on its new projects, i.e. Caustic Chlorine, Chloro Sulpuric Acid, Sulphuric Acid, Oleum, Single Super Phosphate and Cholorinated Heavy Normal Parafin. The sales of Rs. 28,37,31,008/- and inventories of Rs. 2,43,11,008/- for these projects have been shown under Profit & Loss Account and thus, offered to Income-tax. Expenses of Rs.103,79,50,500/-, as per the statement enclosed herewith, have been incurred for the day to day activities of business for these projects whose production have been started. Expenses include the expenses for manufacturing of the goods viz. Raw Materials Consumed, Power & Fuel, Labour charges, interest on loans, administrative expenses like telephone exp., printing & stationery exp. and salaries etc. The expenses being admittedly incurred for the purpose of the manufacturing and selling goods, and thus, the expenses are revenue expenses and the loss incurred on this manufacturing activity is a business loss and hence allowable loss under-the provisions of the Income-tax Act. Interest of Rs. 69,34,44,203/- is allowable u/s 36(l)(iii) in view of the decision of the learned CIT (Appeals) in our own case in Appeal for the A.Y. 1994-95, and other expenditure of Rs.34,45,06,297/- have been claimed as expenses allowable under the provisions of the Income-Tax
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Act as discussed in the above para, being expenses wholly and exclusively incurred for running of the projects which are the part and parcel of the existing business of the Company. Corresponding addition to fixed assets to the tune of Rs. 21,74,51,000/- out of Rs. 103,79,50,500/-, is not considered for claim of depreciation." The Assessing Officer stated that it could be seen that the assessee had incurred huge amount towards purchases of raw material, manufacturing expenses, administrative exp. etc. A glance at the individual items of expenses could reveal that most of them are incurred in round figure of thousands and lacs. It was alleged by the Assessing Officer that it is to be seen against the background that this group has been involved in major racket of bogus billing. The Assessing Officer further observed that for the claim of production from these new-projects, the assessee was asked to furnish evidences to prove this but they failed to adduce any evidence to this effect. The Assessing Officer contended that to claim any expenditure burden lies on the assessee to show the genuineness of the expenditure, and in this case the assessee failed to produce any evidence regarding commencement of the commercial production. It failed to produce any evidence regarding any expenditure claimed by it. The Assessing Officer further held that the assessee submitted that they have started the new project and the production was carried out as they have offered a sales of 28,37,31,008/- and inventory of Rs.2,43,11,008/- for this project. This figure is included in the consolidated sales for the entire project. There is no specific information given for different project, and whether this production was carried out by the new plant or by old plant is not known. As the sales bills are not produced, it is not known whether these sales bills are genuine or not. Their claim for production & sales by new plant is therefore unsubstantiated & false. And in view of above, the Assessing Officer disallowed the expenses of Rs. 103,79,50,000/- and after reducing therefrom the expenditure already not claimed u/s 43B by the appellant, the amount of Rs. 68,56,95,870/- was added to income. 9.2 The appellant submitted that the Assessing Officer has erred in disallowing expenses of Rs. 103.79 crores mainly on the ground that the assessee failed to adduce any evidence to show that production was started in case of the new projects, expenses of which are claimed as revenue expenses. It was submitted by the appellant that the evidences covering Annexure-1 to Annexure-16, regarding the commencement of production and its commercial use had been collectively, annexed as Annexure-4 to our letter dated 26/3/2001 given during the assessment proceedings. The appellant
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enclosed the statement of the list of these Annexures given during the assessment proceedings. One of these annexures include the full evidences of electricity expenses which is one of the major expenses of Rs. 103.79 crores. Further, the statement of interest on term loan of Rs. 6345.77 lakhs was also given during the assessment proceedings, copy of the same alongwith the full details and break-up of loan funds of Rs. 67739.70 lakhs was also given with Grounds of Appeal. Further, it was submitted by the appellant that it is incorrect and illegal on the part of the Assessing Officer to state that no evidence regarding payment of interest has been given. The exhaustive certificate with full details of allowable expenses u/s 43B was enclosed alongwith the Return of Income. The appellant enclosed this certificate alongwith Grounds of appeal. Further, the break-up of sales of Rs. 28.37 crores, being the part of income from Operations of Profit & Loss account and offered to Income-tax, was also given during assessment proceedings. The same has been also annexed with Grounds as Annexure2. It was submitted by the appellant that the Assessing Officer has erred in taking the undue advantage of the circumstances beyond the control of the appellant company due to fire accident and with a pre-determined mind and keeping the closed eyes towards the appellant's contention, the disallowance has been made. The appellant vehemently protested and stated that the Assessing Officer has grossly erred in malafidely stating that "As regard the expenses of Rs. 103,79,50,500/- the details of which have been given in Annexure. It could be seen that the assessee had incurred huge amount towards purchases of raw material, manufacturing expenses, administrative exp. etc. A glance at the individual items of expenses it could reveal that most of them are incurred in round figure of thousands and lacs. It is to be seen against the background that this group has been involved in major racket of bogus billing" The appellant submitted that it was a state of sorry affairs on the part of the Assessing Officer to make such type of vague statement without verifying any details and facts. The appellant humbly submitted that there is no additions / disallowances in the nature of bogus billings in its own case in any earlier assessment year. The unwarranted allegations made are totally false, fabricated and with ulterior motive. The said observations are totally denied as false, frivolous, vexatious and without any basis and merits whatsoever. The appellant further submitted that out of expenses of Rs, 103.79 crores, the major expenses are interest of Rs. 69.34 crores and electricity expenses of Rs. 27.34 crores. The evidences of both these expenses are given during the assessment proceedings and the same are enclosed alongwith Grounds of Appeal as Annexure-4 and Annexure-3 respectively. The other expenses are normal administrative expenses and expenses on Staff etc., and are allocated towards new projects and therefore, they are in round figures.
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The appellant has expressed its anguish and stated that the Assessing Officer's observations are whimsical, biased, intended to instigate the human feeling of the Appellate authorities and without verification of the correct facts. The observations made by the A.O. are totally unwarranted, misconceived and are devoid of any factual and legal merits, and such observation being in the nature of jeopardising the interest of the appellant company. In view of this the appellant prayed that the whole disallowance of the expenses of Rs. 103.79 crores be deleted as being without application of mind regarding the facts and law. 9.3 I have carefully considered the facts of the case, discussion made in the assessment order, evidences enclosed alongwith the Grounds of Appeal and discussion made by the appellant during the appeal hearing. I have verified the statements, submitted by the appellant, which were also given during the assessment proceeding, At page-25 of the assessment order, the Assessing Officer has reproduced the reply of the appellant. At page-26 of the assessment order, it is reproduced as under: "(b) The evidences regarding the starting of the production and its commercial use have been annexed hereto collectively as Annexure-4 (internal Annexures - Annexure-1 to Annexure-16)” Thus it clearly appears that the appellant has given the corroborative evidences before the Assessing Officer during the assessment proceedings. The statement showing theses evidences put up before the Assessing Officer is reproduced below: 1. Production Reports for the months from June 1997 to March 1998. 2. Statement showing total number of sales bills generated during the period from June 1997 to March 1998 - A sample copy of excisable Invoices generated during the year 1997-98 was also enclosed. 3. Report from Alkali Manufacturer Association of India, Delhi stating the production of Caustic Soda by the company in the year 1997-98 4. Copy of Electricity Bills of CCP Plant for the month from June 1997 to March 1998 totalling to Rs. 3078.61 lacs. 5. Copy of Stock Statement submitted to the consortium banker from the month from June 1997 to March 1998. 6. A copy of certificate issued by Commissioner of Electricity, Gandhinagar dated 12th September, 1997 exempting the unit from the payment of Electricity duty w.e.f. July 1997, which confirms that company started production from June 1997. 7. Excise Returns of the months from June 1997 to March 1998. Copy of Excise Return in form no. RT-12. Sample copy of excise gate-pass for each month was enclosed.
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A statement showing Salary paid to CCP Plant staff for the month from June 1997 to March 1998. Copy of Provident Fund return for the month from June 1997 to March 1998. 9. Letters dated 08.10.1997 and 13.02.1998, addressed to Addl. Industries Commissioner, Gandhinagar, regarding commencement of new projects. 10. Technical Reports from ABB Ltd., Tecnimont ICB Ltd., regarding successful completion of project-work. 11. Copies of Sales Tax Returns for the year 1997-98. 12. Copy of Certificate of Sales Tax Registration dated 30.09.1996. 13. Statement showing Qty. of SALT received during 1997-98. 14. Letter dated 3.6.97 from Chairman of the company to Shri K.V.Kamath, CEO & M.D. of ICICI, inviting him to inaugurate the CCP. Reply letter dated 11.6.97 from Shri Kamath, expressing his inability to attend the inauguration function and wishing the project every success. Copies of all the above referred documents were provided to the Assessing Officer during the assessment proceeding. One of these annexures includes the full evidences of electricity expenses which is one of the major expenses of Rs. 103.79 crores. Further, the statement of interest on term loan of Rs. 6345.77 lakhs was also given during the assessment proceedings, copy of the same alongwith the full details and break-up of loan funds of Rs. 67739.70 lakhs was also given with Grounds of Appeal. Regarding payment of interest and its allowability u/s 43B, the exhaustive certificate with full details of allowable expenses u/s 43B was enclosed alongwith the Return of Income. From the verification of the above proofs produced by the appellant, I have no hesitation to agree with the appellant's contentions that the Assessing Officer's observations are whimsical, biased and unwarranted and the impugned disallowance of revenue expenses including electricity and interest expenses was without verification of the correct facts. The observations made by the A.O. are totally unwarranted, misconceived and are devoid of any factual and legal merits, and least to say most perverse. The Assessing Officer ought to have avoided unwarranted observations made without verification of correct facts while making the assessment. In view of the facts that the production has started, I held that the appellant is entitled to claim the expenses of Rs. 103,79,50,500/- and the expenses claimed of Rs. 68,56,95,870/- after reducing the expenses disallowable u/s 43B, are hereby allowed as allowable revenue expenses in computation of total income.” 68. Being aggrieved by the order of Ld. CIT(A), the Revenue is in appeal before us. 69. Before us, the Ld. D/R relied upon the assessment-order.
We have perused the assessment-order as well as order of CIT(A). After a careful consideration, we observe that the assessee has submitted various
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evidences in support of production and sales, in fact many of them are statutory records and documents maintained under various law, but the Ld. AO has not given due consideration. During the first appellate proceeding, the Ld. CIT(A) has given due careful consideration to those evidences and reached to a conclusion that the assessee has done production and sales activity of the new projects. Having done so, the Ld. CIT(A) concluded that rightly concluded that the assessee was entitled to deduction. We do not find any infirmity in the findings and conclusions made by Ld. CIT(A) which are based on various evidences placed by the assessee. At the time of hearing, the learned DR has also not brought anything contrary to the finding of the learned CIT-A. Therefore, this Ground is also dismissed.
Ground No. 3 – Deduction of interest expenditure of Rs. 5,05,12,605/-:
In this Ground the revenue has claimed that the Ld. CIT(A) has wrongly directed to allow interest expenses of Rs. 5,05,12,605/-.
Facts qua this Ground are such that the assessee has incurred interest expenditure of Rs. 7,19,56,331/-, out of which a disallowance of Rs.2,14,43,726/- was ascertained u/s 43B and net expenditure of Rs. 5,05,12,605/- was claimed as effective deduction. It is the contention of assessee that this interest is incurred on Working Capital Term Loan taken for the purpose of business and therefore allowable u/s 36(1)(iii). However, the AO disallowed the same considering that the interest expense was not incurred for the purpose of the business. Thus he disallowed the same and added to the total income of the assessee.
The Ld. CIT(A) has allowed deduction vide Para No. 11.1 to 11.3 of his order, which is extracted below: “11.1 The Assessing Officer found that the assessee, vide Note No.5 to the statement of total income has claimed Rs. 7,19,56,331/- in respect of interest on working Capital Term Loan as revenue expenditure u/s.36(l)(iii) being incurred wholly and exclusively for the business of the company. In books of accounts, 'these expenses are treated as deferred revenue expenditure and out of that, expenses of Rs. 1,02,79,476/- have been charged to profit A Loss a/c. The Assessing Officer disallowed the interest expenses of Rs. 7,19,56,331/- holding that:
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a) Whether the term loan has actually been utilised for the projects for which it was sanctioned has not been proved. No such evidence has been filed by it. b) The assessee failed to furnish evidence of payment of interest. Interest has to be paid during this year before any claim of allowance is made. Else u/s 438 the same is clearly inadmissible. c) The said interest has not been debited to the profit & Loss a/c. The assessee's claim to follow two systems of accountancy, are one under the companies Act and the other under the I.T. Act. It cannot ride the two bases at the same time. 11.2 The appellant submitted that the Assessing Officer has erred in disallowing the impugned interest expenses without correctly appreciating the facts of the case and legal position. The appellant drew my attention to the details of the deferred revenue interest expenses given alongwith the Return of Income which reads as under :- PARTICULARS Working Amount of Amount Capital Interest Written Term Loan Expenses off in the (Rs. In Lacs) for the year books of accounts Bank of India 934.97 17640236 2520034 Bank of Baroda 1370.00 25334707 3619244 Union Bank of India 720.00 10018980 1431283 Corporation Bank 590.00 9572840 1367549 British Bank of Middle 1800.00 9389568 1341367 East TOTAL 71956331 10279476
The appellant also drew my attention to the Certificate dated 27th November, 1998 of Chartered Accountants filed alongwith the Return of Income. The statement-3 at this certificate refers to amount remained unpaid before due date and disallowable u/s 43B, as against the deferred revenue interest expenses remained unpaid as at 31st March, 1998. As per this certificate the following amounts remained unpaid out of the Deferred revenue interest expenses:- Name of the Bank Amount Rs. Bank of India 8841082
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Bank of Baroda 12602644 Total 21443726
The appellant further submitted that the expenses of interest of Rs. 7,19,56,331/- has been claimed u/s 36(l)(iii) of the Income-tax Act, and for claim of the expenses u/s 36(l)(iii), the appellant has complied all the conditions as envisaged by this section. The appellant submitted that for a claim of deduction under Section 36(l)(iii), all that is necessary is that, first, the money, that is capital, must have been borrowed by the assessee; secondly, it should have been borrowed for the purpose of the business, profession or vocation of the assessee; and thirdly, the assessee should have paid the amount as an allowance under that clause. The said view is also supported by the judgment of Supreme Court in the case of Vecumsees vs CIT 220 ITR 15, wherein it has been that as long as loans had been obtained for the purposes of the assessee's business, interest paid thereon has to be treated as a deduction u/s. 36(l)(iii) of the Act. The appellant also submitted that even in case of revenue expenses allowable u/s 37(1), if treated deferred expenses in books of accounts, are allowable in the year of incurrence, whereas the claim of interest u/s 36(l)(iii) is fully eligible for the allowance in the year of its incurrence irrespective of its treatment in the books of accounts. Regarding the contention of the Assessing Officer that the impugned interest has not been debited to the profit A Loss a/c, and the assessee cannot be allowed to follow two different methods one for Companies Act and other for the Income-tax Act, the appellant submitted as under :- "[A] The decision of the learned A.O. is based on confusion relating to distinction between the method of accounting and method of maintaining accounts. In other words, the learned A.O., with respect, has overlapped two distinct concepts. The first concept is the method of accounting regularly employed by an assessee and the second concept is the method of maintaining books of accounts. Both these concepts are distinct and different as explained in the case of Kedarnath Jute Mfg. & Co. Ltd. (82 ITR 363) in which it is held as follows:- "Whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter." [B] While it true that the appellant is free to adopt any of the two methods of accounting namely, the method of accounting for the purpose of computation of its profits and gains. If the accounts maintained by the assessee are not in consonance with the method of accounting then the latter must yield to the former. In other words, appropriate adjustments are required
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to be made in the profits disclosed by the assessee in order to bring the same in line with the method of accounting regularly employed. In this connection the appellant on the following relevant observations made in Kedarnath Jute Mfg. & Co Ltd. 's (supra) at pages 366/367: - "An assessee who follows the mercantile system of accounting is entitled to deduct from the profits and gains of the business such liability which had accrued during the period for which the profits and gains were being computed............. The main contention of the learned Solicitor-General is that the assessee failed to debit the liability in its books of accounts and therefore it was debarred from claiming the same as deduction either under Section 10(1) or under Section 10(2)(xv) of the Act. We are wholly unable to appreciate the suggestion that if an assessee under some misapprehension or mistake fails to make an entry in the books of account and although under the law, a deduction must be allowed by the income-tax Officer, the assessee will lose the right of claiming or will be debarred from being allowed that deduction. Whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in the books of the account be decisive or conclusive in the matter. The assessee who was maintaining accounts on the mercantile system was, fully justified in claiming deduction of the sum of Rs. 1,49,776/- being the amount of sales tax which it was liable under the law to pay during the relevant accounting year. " [c] The concept of accounting has been explained by the Hon'ble Supreme Court in the case of C.I. T. Vs. A. Krishnaswami Mudaliar 6 Others (53 ITR 122)(SC). This decision has been relied upon by the learned A. O. but with respect, he has not drawn the correct conclusion flowing from the same. Page 129 /130 it is observed as follows:- "Among Indian businessmen, as elsewhere, there are current two principal systems of book-keeping. There is firstly, the cash system in which a record is maintained of actual receipt and actual disbursements, entries being posted when money or money's worth is actually received, collected or disbursed. There is, secondly, the mercantile system, in which entries are posted in the books of account on the date of the transaction, i.e., on the date on which rights accrue or liabilities are incurred, irrespective of the date of payment. For example, when goods are sold on credit, a receipt entry is posted as of the date of sale, although no cash is received immediately in payment of such goods; and a debit entry is similarly posted when a liability is incurred although payment on account of such liability is not made at the time. There may have to be appropriate variations when this system is adopted by an assessee .who carries on a profession.
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Whereas under the cash system no account of what are called the outstandings of the business either at the commencement or at the close of the year is taken, according to the mercantile method actual cash receipts during the year and the actual cash outlays during the year are treated in the same way as under the cash system, but to the balance thus arising, there is added the amount of the outstanding not collected at the end of the year and from this is deducted the liabilities incurred or accrued but not discharged at the end of the year. Both the methods are somewhat rough. In some cases these methods may not give a clear picture of the true profits earned and certainly not of taxable profits. The quantum of allowances permitted to be deducted under diverse heads under section 10(2) (Old Act) from the income, profits and gains of a business would differ according to the system adopted. This is made clear by defining in sub-section (5) the word "paid" which is used in several clauses of sub-section (2)(or Section 43) as meaning actually paid or incurred according to the method of accounting upon the basis of which the profits or gains are computed under Section 10/(Sec. 28)." [D] It would be now clear from the above decision that under mercantile system of accounting the entries are posted in the books of account on the date of transaction i.e. on the date on which rights accrue or liabilities are incurred irrespective of the date of payment. In other words, the concept. of accrual connotes right to receive coupled with obligation to pay. This aspect of the matter has been further clarified by the Hon'ble Supreme Court in the case of Kesoram Industries And Cotton Mills Ltd. VS. C.W.T. (SC) (591. T.R. 767) in which inter alia held as follows:- "We have briefly noticed the judgements cited at the Bar. There is no conflict on the definition of the word "debt". All the decisions agree that the meaning of the expression "debt" may take colour from the provisions of the concerned Act: it may have different shades of meaning. But the following definition is unanimously accepted: "A debt is a sum of money which is now payable or will become payable in future by reason of a present obligation: debitum in praesenti, solvendum in future.” The said decisions also accept the legal position that a liability depending upon a contingency is not a debt in praesenti or in futuro till the contingency happened. But if there is a debt the fact that the amount is to be certain does not make it any the less a debt if the liability is certain owed what remains is only the quantification of the amount. In short, a debt within the meaning of Section 2(m) of the Wealth-tax Act can be defined as a liability to pay in praesenti or in futuro as ascertainable sum of money. " [E] Thus, once the right to receive income is crystallized or obligation to pay is crystallized under the mercantile system of accounting, the said obligation has to be discharged during the year and would be a proper
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outgoing against profits and gains of business for that year. The learned A.O., with respect, has misconstrued the provisions of Section 4 read with Section 145(1) of the Act. While observing that provisions of Sections 145 are intimately connected with the provisions of Section 4 of the Act, about which there can be no quarrel, he has treated the method of maintaining the books of accounts as method of accounting regularly employed and this misconception has given rise to the entire controversy. " Regarding the purpose of the loan, the appellant submitted that the same has been made amply clear to the Assessing Officer that the loans are working capital demand loans and they are utilised for the day-to-day requirement of working capital wholly and exclusively for the purpose of the business of the company. 11.3 I have carefully considered the facts of the case, discussion made in the assessment order, evidences enclosed alongwith the Grounds of Appeal and discussion made by the appellant during the appeal hearing. The Assessing Officer has not properly gone through the apparent details given by the appellant alongwith the Return of Income and also -produced during the assessment proceedings. The notes given in the audited annual accounts and statement of total income alongwith the details of the same are very clear as to the purpose of the loan, further, the specific Certificate of Chartered Accountants for allowability u/s 43B is a sufficient corroborative proof of the payment of interest and in view of the settled law that whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his right nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter, I direct to allow interest expenses of Rs. 7,19,56,331/- after reducing therefrom interest disallowable of Rs. 2,14,43,726/- u/s 43B of the Income-tax Act.” 74. Being aggrieved by the order of Ld. CIT(A), the Revenue is in appeal before us. 75. The Ld. D/R supported the order of assessment.
We observe that the Ld. CIT(A) has meticulously considered the facts, evidences and submissions given by the assessee. The Ld. CIT(A) has observed that the Ld. AO has not considered the details given by the assessee along with the Return of Income and also produced during the assessment-proceedings. The Ld. CIT(A) has also noted that the Ld. AO has not considered even the certificate of Chartered Accountant as a proof of payment u/s 43B of the Act. The Ld. CIT(A) also observed that the Ld. AO has disallowed a deduction which is clearly allowable to the assessee. We observe that the Ld. CIT(A) has made proper conclusions based
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on the evidences and therefore he has rightly allowed the deduction. We agree with the Ld. CIT(A) and dismiss this Ground of appeal.
Ground No. 4, 6, 7 and 8 - Disallowance of Sales Commission, Foreign Tour expenses, Stamp Paper Expenses, Service Charges:
In these Grounds, the revenue has claimed that the CIT(A) has wrongly directed to allow the deduction of Sales commission of Rs. 3,72,76,900/-, Foreign tour expenses of Rs. 34,60,991/-, Stamp paper expenses of Rs. 1,22,431/- and Service charges of Rs. 1,11,165/-.
During assessment-proceedings the Ld. AO asked the assessee to produce vouchers and evidences of these expenses. However, the assessee showed inability to produce the same due to destruction by fire. The Ld. AO was not justified by the submission of assessee and made disallowance.
The Ld. CIT(A) has deleted disallowances vide Para No. 14.3 by observing as under: “I have carefully considered the facts of the case, discussion made in the assessment-order and discussion made by the appellant during the appeal hearing. I am in complete agreement with the arguments of the appellant that the impugned expenses are certified as genuine expenses by the Statutory as well as Tax auditors, and as discussed in my earlier appeal order for A.Y. 1997-98, Tax Audit is not an idle formality. And in absence of the books of accounts due to fire accident, when the auditors have duly certified the accounts, the presumption is that the accounts are maintained in accordance with the well-established principles laid down in the accounting standards prescribed by the Institute of Chartered Accountants, it is not open to the Assessing Officer to reject this material piece of evidence. In view of this, the appellant can’t be penalized for non-production of books of accounts, vouchers, etc. on account of circumstances beyond its control due to fire accident. In view of above and detailed discussions made in my earlier appeal order for A.Y. 1997-98 for treating the Auditors’ Reports as genuine and valid evidences in support of the claim of expenses in absence of books of account due to fire accident, it is held that the disallowances made by the Assessing Officer is devoid of the appreciation of the facts and legal position and at least to say most whimsical and I direct to delete the disallowance of Rs. 3,72,76,900/- of sales commission expenses, Rs. 34,60,991/- of Foreign Tour
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expenses, Rs. 1,22,431/- of stamp paper expenses and Rs. 1,11,165/- of service charge expenses.” 79.1 Being aggrieved by the order of Ld. CIT(A), the Revenue is in appeal before us. 79.2 The Ld. D/R supported the order of assessment.
We are consciously aware of the submission repeatedly made by the assessee that due to the occurrence of fire, the documents were destroyed and therefore it was not possible to submit evidences. The fact of the fire is undoubtly proved with the help of FIR, newspaper cuttings, etc. Being so, the reasoning of non-production of evidences is well explained and deserves acceptance. The Ld. CIT(A) is fair enough in concluding that in such a situation we have to depend upon the audit-report which is also a statutory document. As the auditors have expressed true and fair view of accounts and there is no adverse reporting against the impugned expenses, the Ld. CIT(A) is justified in allowing deduction of expenses which have been incurred in the course of business and debited to P&L A/c. Therefore, we agree with the view taken by Ld. CIT(A) and dismiss these Grounds.
Ground No. 5 – Deduction of depreciation:
In this Ground the revenue has claimed that the CIT(A) has wrongly given direction to allow the depreciation on additions to fixed assets.
During the course of assessment proceedings, the Ld. AO observed that the assesee has claimed depreciation on additions to the fixed assets but did not produce the evidences in support of purchase. The assessee submitted its inability to produce vouchers due to fire. However, the Ld. AO was not satisfied with the submission of assessee and therefore disallowed depreciation.
The Ld. CIT(A) allowed depreciation vide Para No. 17.3 of this order, by observing as under:
17.3 I have carefully considered the facts of the case, discussion made in the assessment order, and discussion made by the appellant during the appeal hearing.
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While passing the appeal order for A.Y. 1997-98, on identical issue, I have held that in the Fixed Assets Scheduled appended to the Balance Sheet, the details of / additions to the fixed assets have been given, and further, the appellant has filed Depreciation chart as per the income-tax act alongwith the Return of Income, and therefore, in view of these two major facts, the appellant can't be penalised for its inability to produce the vouchers for additions to the fixed assets on account of the fire accident, and accordingly, I had directed to allow the depreciation on assets added during the year. In view of this, I direct to allow the depreciation on these assets in subsequent years."
Being aggrieved by the order of Ld. CIT(A), the Revenue is in appeal before us. 85. Before us, the Ld. D/R supported the order of assessment.
We observe that while completing assessment of A.Y. 1997-98, the Ld. AO disallowed depreciation on additions made to fixed assets for the same reason of non-production of evidences. Being aggrieved by order of Ld. AO, the assessee went in appeal to Ld. CIT(A). The Ld. CIT(A) deleted addition fully. Against the order of Ld. CIT(A), the revenue filed appeal to Ahmedabad Bench of ITAT. The Bench has decided appeal and deleted the addition by observing as under:
“10.5 We have heard the contention of the Ld. DR and given due consideration to the facts. As discussed earlier there was a fire in the premise of assessee due to which the books of accounts and documents were destroyed. However, the accounts of assessee are properly audited under Companies Act as well as Income-tax Act and the assessee has filed depreciations charts, duly audited by the auditors. The auditors have computed depreciation and certified. Due to absence of supporting records being destroyed by fire, it would be reasonable to accept that the depreciation has been rightly claimed. We, therefore, uphold the order of the ld. CIT(A) and direct the AO to delete the addition. Accordingly, this Ground of appeal of the Revenue is dismissed.” 87. The facts and reasoning of assessment year under consideration are exactly identical with the facts and reasoning of A.Y. 1997-98 except that there is a difference in figures involved. Therefore the issue raised by the Revenue in this Ground is squarely covered by the above decision in assessee’s own case for A.Y. 1997-98 against the Revenue and in favour of assessee. We, therefore, hold that
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the CIT(A) has rightly directed the Ld. AO to allow depreciation. Accordingly, this Ground is also dismissed.
Ground No. 9:
This Ground is merely supportive to the Ground No. 1 to 8 and therefore does not require separate adjudication. Hence the same is dismissed being infructuous
Ground No. 10:
This Ground is general in nature and does not require adjudication and the same dismissed being general in nature.
In the result, the appeal of revenue is dismissed.
Coming to the ITA No. 3210/Ahd/2003 for A.Y.1999-2000.The revenue has raised following grounds:
“1. The Ld. C.I.T.(A) has erred in law and on facts in deleting G.P. addition of Rs. 11,59,43,000/ -.
The Ld. C.I.T. (A) has erred in law and on facts in deleting the disallowance of depreciation of Rs. 89,91,41,202/- on plant and machinery-.
The Ld. C.I.T. (A) has erred in law and in facts in directing to delete the interest expense of earlier year amounting to Rs. 2,39,54,938/-.
The Ld. C.I.T. (A) has erred in law and on facts in directing to delete the disallowance of interest of Rs. 1,19,87,880/-.
The Ld. C.I.T. (A) has erred in law and on facts in directing to delete Rs. 39,69,387/- claimed in respect of revenue expenditure of earlier years.
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On the facts and in the circumstances of the case, the ld. C.I.T.(A) ought to have upheld the order of the Assessing Officer.
It is, therefore, prayed that the order of the ld. C.I.T.(A) may be set aside and that of the Assessing Officer be restored to the above extent.”
The assessee-company is engaged in the business of manufacture and trading of chemicals. It submitted return on 22.12.1999 declaring a loss of Rs. 160,73,48,477/-. The Ld. AO completed assessment u/s 143(3) at a loss of Rs. 43,42,02,178/- after making various additions.
Ground No. 1 – G.P. addition of Rs. 11,59,43,000/-:
In this Ground the revenue has claimed that the CIT(A) has wrongly deleted the Gross-Profit addition of Rs. 11,59,43,000/- made by Ld. AO.
Facts qua this issue are such that during assessment proceeding, the Ld. AO issued notice u/s 142(1) and required the assessee to explain as to why the assessee incurred a gross loss of Rs. 1159.43 lakhs on a turnover of Rs. 19772.72 lakhs, resulting in (-) 5.77% G.P. Rate as against declared GP Rate of 23.19% in the immediately preceding year. In response, the assessee submitted that the loss was on account of insufficient working capital due to new projects, high cost of electricity, worldwide recession, etc. However, the Ld. AO did not accept the submissions of assessee and rejected the gross loss of Rs. 1159.43 lakhs and made an addition of Rs. 1159.43 lakhs.
The Ld. AO has justified the addition of Rs. 1159.43 lakhs in Para No. 4 of assessment-order as under:
“During the year under account the assessee has declared the G P (-) 5.77% on total turnover of Rs.197.72 crores as against G.P. 23.19% declared in the immediately preceding year. It would be worthwhile to point out here that the G.P. in the earlier year had not been accepted in the preceding year and the G.P. was estimated as against the declared G.P. The assessee had claimed
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that the books of accounts, vouchers bills etc. have been produced. But in fact they have brought the books of account which were not complete and without supporting vouchers, bills and supporting evidence etc. Moreover, the books were brought by their employee but there was no responsible persons who set to explain the books of accounts. Merely bringing the books in the office does not amount to production of books of accounts for the purpose of verifications for assessment purpose. Moreover, there is a substantial loss in G.P. No doubt, there is a recession in the market. However, the assessee should explain the reasons for law G.P. It is claimed in the Director's report that the reasons for the loss are on account of insufficient working capital, high cost of electricity, worldwide recession and fall in international and domestic demand towards production and sales had resulted in heavy loss.
In absence of furnishing evidences regarding expenditure incurred by the assessee the book result cannot be accepted. The G.P. of this year is worked out as under:
ANNEXURE-1 -------------------------------------------------------------------------------------------- MARDIA CHEMICALS LTD. 1997-98 1998-99 -------------------------------------------------------------------------------------------- Income from operations 18702.49 19772.72 Increase/Decrease in Stock 187.62 329.61 ------------ ----------- Total (a) 18514.87 20102.33 ------------ ----------- Material Cost 9306.29 10507.62 Power & Fuel Expenses 1929.12 7288.76 Frieght & Octroi 1103.45 1055.70 Stores consumption 847.02 539.50 Other Mfg. Exp 352.32 873.95 Employees Remuneration 683.62 996.23 ---------- ----------- 14221.82 21261.76 ---------- ----------- -----------------------------------------------------------------------------------------------
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Gross profit 4293.05 (-) 1159.53 ---------------------------------------------------------------------------------------------- Gross profit in percentage 22.95% (-) 5.77% ----------------------------------------------------------------------------------------------
Considering the facts narrated in the preceding assessment year the addition had been made. Same facts are exist in this year also. Books of accounts bills vouchers any evidence of any payment had not been produced and therefore the book result is rejected. Moreover, the sales is increased and profit is reduced. Therefore the book result cannot be accepted. No doubt there is a increase in the manufacturing expenses. But, assessee’s claim in respect of gross profit at loss of Rs. 1159.43 (In Lacs) cannot be accepted and same is rejected. It is also observed here that the vast difference in the profit rate as compared to preceding year i.e. at the rate of 22.95% for F.Y. 1997-98, Such rate of lower profit from immediate preceding year is not acceptable. However, looking to the facts of the case and reasons cited by the assessee it has got some substance and therefore considering all the factors the gross loss of Rs.1159.43 (in Lacs) is rejected and addition to this extent is made to the total income. Therefore addition of Rs.. 1159. 43(in Lacs) is made to the total income. Issue penalty notice u/s.271(1)(c) of the l.T. Act.” 96. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who deleted this addition vide Para No. 6.3 of this order, by observing as under:
“6.3 I have carefully considered the facts of the case, discussion made in the assessment order, and discussion made by the appellant during the appeal hearing, and written submissions made during the assessment proceedings. I have also gone through the written submissions made by the appellant during the appeal hearing for A.Y. 1997-98. I am in complete agreement with the appellant that the action of the Assessing Officer to make such a huge addition by rejecting the gross loss rejecting the book results in utter disregard to the material and evidences on record is arbitrary, unwarranted and at least to say perverse in view of the following facts: (1) The appellant had filed audited balance sheet along with Director's report for the assessment year under appeal. The appellant had further filed various statements in support of its claim for deduction of expenses which have been overlooked by the A.O. The A.O. has admitted the fact
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that the appellant had filed tax audit report under Section 44AB of the Act. The appellant being a public limited company its accounts are subject to audit not only by Company auditors but by Tax auditors. The accounts have been maintained by the appellant in the proper and regular manner which could be substantiated FIRSTLY by the fact that in the past the accounts are maintained in the same manner have been duly accepted. SECONDLY the appellant being a Limited Company its accounts are audited by Company Auditors as well as tax auditors under Section 44AB of the Act.
(2) When the auditors have duly certified the accounts, the presumption is that the accounts are maintained in accordance with the well-established principles laid down in the accounting standards prescribed by the Institute of Chartered Accountants, it is not open to the Assessing Officer to reject this material piece of evidence. (3) It is very much surprising that the appellant had produced number of books of accounts during the assessment proceedings during the year under consideration. However, the Assessing Officer has not taken care to even verify the same and casually stated that the assessee brought the books of accounts which were not complete and without supporting vouchers, bills and supporting evidence etc, and further stated that the books were brought by their employee but there was no responsible persons who set to explain the books of accounts, when both the authorised representatives shown in the assessment order are qualified professionals. (4) This is my third consecutive appeal order in the case of the appellant and I am shocked and at a loss to understand why such whimsical and unwarranted additions / disallowances are made overlooking the facts of the case and against the settled legal principles. In view of above, the Assessing Officer was not at all justified in rejecting book results and thereby rejecting the gross loss of the appellant company. I direct the Assessing Officer to restore the gross of Rs. 11,59,43,000/-.”
Being aggrieved by the order of the Ld. CIT-A, the Revenue is in appeal before us.
Before us, the Ld. D/R relied upon the assessment-order and argued that the Ld. AO has made addition perfectly.
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We have perused the assessment-order as well as order of Ld. CIT(A). It is clear from the facts available on record that the assessee has produced books of account and documents before the Ld. AO through the responsible and qualified authorised representatives. It is also seen that assessee is a listed company and its books of account were audited under the provisions of Companies Act as well section 44AB of Income-tax Act, 1961 and the audited accounts were submitted before Ld. AO. The assessee has also submitted the reasons of fall in G.P., viz. insufficient working capital due to new projects, high cost of electricity, worldwide recession, etc. to Ld. AO. These reasons are not lame excuses. In fact these reasons are corroborated from the facts available in the assessment-order itself. The fact that the assessee had started new projects in recent past, is very much known to the Ld. AO because of the litigation subsisting in assessments of those years with regard to the deduction of pre-operative expenses incurred for those projects. A careful reading of Annexure-1 mentioned by the Ld. AO in Para No. 4 of assessment-order (reproduced earlier) demonstrates that the cost of power had increased very heavily from Rs. 1,929.12 lakhs to Rs. 7,288.76 lakh. The fact of recession is admitted by Ld. AO in Para 4 of assessment-order (reproduced above) where the Ld. AO has himself stated “No doubt, there is a recession in the market”. Hence the reasons advanced by the assessee are well-explained. The Ld. AO has further stated that the book-results were also rejected in the preceding two assessment years, viz. AY 97-98 and AY 98-99, but the Ld. AO has not stated the complete facts in this respect. It is true that the book-results were rejected in A.Y. 1997-98 and 1998-99, but in those years, the rejection of books of account was due to non-production of the books of account destroyed in fire. However, during the year under consideration there is no such reason and the assessee has produced the books of account and documents from time to time. It is also noteworthy that even in A.Y. 1997-98 and 1998-99, the assessee challenged the rejection of books before CIT(A) and Ld. CIT(A) has held that the rejection was wrong. We also observe that the Ld. AO has simply rejected the gross loss of Rs. 1159.43 lakhs declared by the assessee under the garb of G.P. estimation. We fail to understand this kind of estimation. Thus, on a careful consideration, we observe that the Ld. AO has not considered the facts in a proper manner and acted wrongly in rejecting the
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audited book-results declared by the assessee. The Ld. CIT(A) has given due consideration and rightly held that the Ld. AO was not justified to reject the book- results. We agree with the observations and conclusions made by Ld. CIT(A). Therefore, this Ground of revenue is dismissed.
Ground No. 2 – disallowance of depreciation of Rs. 89,91,41,202/-:
In this Ground, the revenue has claimed that the CIT(A) has wrongly deleted the disallowance of depreciation of Rs. 89,91,41,202/- made by Ld. AO.
Facts qua this issue are such the assessee was having opening balance of Capital Work-In-Progress (CWIP) for which the expenditure was incurred in earlier years, viz. A.Y. 1997-98 and 1998-99. During the assessment year under consideration, the assessee transferred this opening balance of CWIP to relevant fixed assets by an accounting-entry and claimed depreciation. The Ld. AO did not allow depreciation on the ground that the assesee had not produced the books of account and documents in the scrutiny proceedings of A.Y. 1997-98 and 1998-99 on the ground of destruction by massive fire on 18.08.1998. Although the assessee filed various corroborative evidences on 22.03.2002 but the Ld. AO disregarded the same. In short, the Ld. AO has disallowed depreciation due to lack of evidences in support of expenditure incurred on CWIP and added to the total income of the assessee.
Aggrieved, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A) has deleted the disallowance vide Para No. 7.4 of his order, by observing as under:
“7.4 I have carefully considered the facts of the case, discussion made in assessment order, the submissions and evidences given by the appellant and discussion made by the appellant during the appeal hearing.
While passing the appeal orders for A.Y. 1997-98 and A.Y. 1998-99, on identical issue, I have held that in the Fixed Assets Schedule appended to the Balance Sheet, the details of additions to the fixed assets have been given, and further, the appellant has filed Depreciation chart as per the
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income-tax act alongwith the Return of Income, and therefore, in view of these two major facts, the appellant can't be penalised for its inability to produce the vouchers for additions to the fixed assets on account of the fire accident, and accordingly, I had directed to allow the depreciation on assets added during the year. From the year under consideration, the provisions for Tax Audit u/s 44AB were made more stringent and now the Tax Auditors are also required to certify the eligible amount of depreciation. The tax auditors have certified the eligible amount of depreciation after putting up the explanatory notes. The Assessing Officer has very casually disallowed such a huge amount of depreciation simply by stating that in the absence of proper evidence, the claim of the depreciation without going through the number of corroborative evidences including the major evidences from the Central and State Government authorities, Banks & Financial Institutions, State Electricity Boards, reports of the renowned technical consultants, chartered accountants etc. Such a casual and ad-hoc approach and full lacking of principles of natural justice can't serve any purpose for the revenue. In view of the above, the Assessing Officer is not at all justified in disallowing such a huge amount in a wholesome manner disregarding all the corroborative and independent evidences produced by the appellant, and therefore, I delete the disallowance of depreciation of Rs. 89,91,41,202/-.” 103. Being aggrieved by the order of the Ld. CIT-A, the Revenue is in appeal before us.
Before us, the Ld. D/R has placed reliance upon the assessment-order.
The crux of dispute is that the assessee incurred cost of CWIP during the previous years relevant to A.Y. 1997-98 and 1998-99 and the books of account and documents of those years were destroyed by fire, as a result of which the assessee was not able to produce evidences in support of cost of CWIP. At this stage, we also observe that even while completing assessments of A.Y. 1997-98 and 1998-99, the Ld. AO disallowed depreciation on additions to fixed assets made by the assesee in those years and the matters travelled upto this Bench itself. This Bench has decided appeals of A.Y. 1997-98 and 1998-99 and allowed the deduction of depreciation by observing as under:
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“We have heard the contention of the Ld. DR and given due consideration to the facts. As discussed earlier there was a fire in the premise of assessee due to which the books of accounts and documents were destroyed. However, the accounts of assessee are properly audited under Companies Act as well as Income-tax Act and the assessee has filed depreciations charts, duly audited by the auditors. The auditors have computed depreciation and certified. Due to absence of supporting records being destroyed by fire, it would be reasonable to accept that the depreciation has been rightly claimed. We, therefore, uphold the order of the ld. CIT(A) and direct the AO to delete the addition. Accordingly, this Ground of appeal of the Revenue is dismissed.” 105.1 Therefore, we observe that the issue raised by the Revenue in this Ground is squarely covered by the above decision in assessee’s own case for A.Y. 1997-98 and 1998-99 against the Revenue and in favour of assessee. We, therefore, hold that the CIT(A) has rightly directed the Ld. AO to allow depreciation. Accordingly, this Ground is also dismissed.
Ground No. 3 – Disallowance of Interest expense of Rs. 2,39,54,938/-
In this Ground, the revenue has claimed that the CIT(A) has wrongly deleted the disallowance of interest expenditure of Rs. 2,39,54,938/- made by Ld. AO.
Facts qua this issue are such that during A.Y. 1998-99, the assessee incurred pre-operative interest expenditure of Rs. 3,00,34,272/- relating to new projects in earlier years and claimed the same as deduction in those earlier years u/s 36(1)(iii), but at the same time the assessee made a disallowance of same amount u/s 43B due to non-payment. During the previous year relevant to the assessment-year under consideration, the assessee made payment of Rs. 3,00,34,272/- and hence the same become re-allowable u/s 43B. Out of this payment of Rs. 3,00,34,272/-, the assessee claimed deduction to the extent of Rs. 2,39,54,938/- only, being the interest capitalized in books of account but allowable as revenue expenditure. In short, the assessee has claimed deduction of Rs. 2,39,54,938/- of the interest expenditure disallowed in the earlier year u/s 43B but re-allowable u/s 43B on payment basis. The Ld. AO has, however, disallowed this deduction by observing that in the assessment order for A.Y. 1998-99, the full pre-operative expenditure have been disallowed and therefore there is no question of allowing the same even
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on payment basis u/s 43B. Hence the AO disallowed the same and added to the total income of the assessee.
Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who has deleted the disallowance vide Para No. 9.3 of his order, by observing as under:
“9.3 I have carefully considered the facts of the case, discussion made in the assessment order, and discussion made by the appellant during the appeal hearing. In my appeal order for A.Y. 1997-98 in the case of the appellant, I have held that the pre-operative interest expenses are allowable expenses in view of the binding decision of Hon'ble Gujarat High Court in the case, of Core Healthcare Ltd. (supra). Further, I have also allowed the expenses of Rs. 103.79 crores subject to the payments u/s 43B while passing the appeal order for A.Y. 1998-99. There is no dispute as regard the payment of interest amount, and therefore, I held that the pre-operative interest expenses are allowable expenses and as the payment is made of Rs. 2,39,54,938/- during the year under consideration, the impugned amount is allowable u/s 43B of the Income-tax act, and accordingly, I allow the expense of Rs. 2,39,54,938/- .” 109. Being aggrieved by the order of the Ld. CIT-A, the Revenue is in appeal before us.
Before us, the Ld. D/R has placed reliance upon the assessment-order.
We have perused the assessment-order and the order of CIT(A). A deep reading of the assessment-order indicates that there is no dispute without regard to the fact of payment having been made in the previous year relevant to assessment- year under consideration. The Ld. AO has, however, made disallowance on the ground that the impugned interest was not allowed as deduction u/s 36(1)(iii) itself in earlier years and therefore payment thereof cannot entitle the assessee to get deduction u/s 43B. It is true that the Ld. AO did not allow the claim of assessee u/s 36(1)(iii) in earlier years, but the assessee preferred appeal to CIT(A) against the action of Ld. AO. The Ld. CIT(A) has already passed orders of earlier years and allowed deduction. Thereafter, the revenue filed appeal against the order of CIT(A) to this Bench of ITAT and this Bench has also allowed the deduction. Therefore, the allowability u/s 36(1)(iii) is no more in doubt. Being so, the assessee deserves the
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deduction of Rs. 2,39,54,938/- on payment basis u/s 43B. Therefore, this Ground of revenue is also dismissed.
Ground No. 4 - Disallowance of interest of Rs. 1,19,87,880/-:
In this Ground, the revenue has claimed that the CIT(A) has wrongly deleted the disallowance of interest expenditure of Rs. 1,19,87,880/- made by Ld. AO.
The facts qua this Ground are such that the assessee had claimed a deduction of interest expenses on Working Capital Term Loan amounting to Rs. 2,12,04,206/- as revenue expenditure u/s 36(1)(iii). Out of this, expenses of Rs. 92,16,326/- was unpaid and therefore disallowed u/s 43B of the Income-tax Act, 1961. The assessee claimed deduction of balance interest amounting to Rs. 1,19,87,880/-. The Ld. AO disallowed deduction mainly by observing that (i) no evidence has been produced to demonstrate whether the loan had actually been utilized for the projects for which it was sanctioned, (ii) The assessee has filed to furnished evidence to show that the interest of Rs. 1,19,87,880/- was actually paid during the previous year, else it will get disallowed u/s 43B, and (iii) The interest has not been debited to P&L A/c. The assessee has capitalized in books of account but claimed deduction in Return of Income. Such dual system is not allowed.
Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who deleted this addition vide Para No. 8.3 by observing as under:
“8.3 I have carefully considered the facts of the case, discussion made in the assessment order, and the discussion made by the appellant during the appeal hearing, I have also gone through the various judgments, referred to above, relied upon by the appellant company. In case of the appellant itself, I have also decided the issue on identical facts while passing the appeal order for A.Y. 1997-98 in favour of the appellant. Respectfully following the decision of Hon'ble Gujarat High Court in the case of Dy. CIT Vs. Core Healthcare Ltd. (251 ITR 61) (Guj), decision of my predecessor and following my decision for the A.Y. 1997-98, I delete the disallowance of interest of Rs. 1,19,87, 880/-.” 115. Being aggrieved by the order of the Ld. CIT-A, the Revenue is in appeal before us.
Before us, the Ld. D/R has placed reliance upon the assessment-order.
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We have perused the assessment-order as well order of Ld. CIT(A). We observe that the Ld. AO has firstly mentioned that no evidence has been produced to prove that the loans were utilized for the projects for which they were sanctioned. We observe that the assessee has taken loan from banks and financial institutions which have a tight control and monitoring over the utilization. Even otherwise section 36(1)(iii) requires use of loan for “business” and not more than that. Therefore the verification by Ld. AO should be confined to business use and not utilization for the projects for which the loans were sanctioned. The Ld. AO has secondly mentioned that the assessee has not given evidence of payment made. This observation of Ld. AO is also not very correct in as much as the assessee is a company and produced audited books of account. The assessee has itself submitted before Ld. AO that the total interest was Rs. 2,12,04,206/-, out of which Rs. 92,16,326/- was unpaid and Rs. 1,19,87,880/- was paid. These figures can be verified from the audited books of account produced by the assessee. Thirdly, the Ld. AO has observed that the assessee cannot apply dual approach i.e. capitalization in books of account and claiming deduction in Income-tax Return. This observation is also not legal because Income-Tax law is nothing do with the books of account. It is a well-settled law that the taxable income has to be computed in accordance with the provisions of Income- tax Act, 1961. It is also settled in catena of judgements that even if the assesee has capitalized a particular expenditure in books of account to meet accounting requirement but the same is allowable as deduction in Income-tax Act, the deduction has to be given. Thus, we find that all observations of Ld. AO do not have strength. The Ld. CIT(A) has rightly deleted the deduction. Therefore, this Ground of revenue is also dismissed.
Ground No. 5 – Disallowance of revenue expenses of Rs. 39,69,387/-:
In this Ground, the revenue has claimed that the CIT(A) has wrongly deleted the disallowance of revenue expenses amounting to Rs. 39,69,387/- made by Ld. AO.
Precisely stated, the facts qua this Ground are such that the assessee had incurred a total expenditure of Rs. 3,03,46,617/-, for which the Ld. AO required the assessee to produce supporting bills and evidences. In response the assessee
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submitted details of expenditure but provided vouchers of only one of the major expense amounting to Rs. 2,63,77,230/-. For balance expenditure of Rs. 39,69,387/-, the assessee submitted a certificate of Chartered Accountant because voluminous vouchers were involved for small amounts and it was not practicable to produce vouchers. The Ld. AO, however, disallowed deduction for want of vouchers.
Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who deleted this addition vide Para No. 10.2 by observing as under:
“10.2 I found no justification for the action of disallowing the impugned expenses when the appellant has submitted the certificate of Chartered Accountants and also copy of the Statement of Account of the relevant account, and proof of major expenses. From the same Statement of Account, the Tax Auditors have found out the income pertaining to assessment year under consideration and the appellant has offered the income in the Return of Income. In view of the above facts, the insistence of the Assessing Officer in producing vouchers, and evidences and payment proofs of each of the expenses is unwarranted and he is not justified in disallowing the impugned expenses. I direct to allow the expenses of Rs. 39,69,387/-.” 121. Being aggrieved by the order of the Ld. CIT-A, the Revenue is in appeal before us.
Before us, the Ld. D/R has placed reliance upon the assessment-order.
We have perused the assessment-order as well order of Ld. CIT(A). We observe that out of the total expenditure of Rs. 3,03,46,617/-, the assessee has submitted voucher of major expenditure of Rs. 2,63,77,230/-. And for balance sum of Rs. 39,69,387/-, the assessee has submitted C.A. certificate. As submitted by the assessee, the necessity to submit C.A. certificate arose due to the high quantity of vouchers. Even C.A. is a professional accountant and does not issue certificate without due verification. The Ld. AO should not have made disallowance of a meagre sum of Rs. 39,69,387/- for the assessee which happens to be a listed company and accounts are duly audited under various laws. Having regard to the fact that the amount involved is meagre and that too certified by a C.A., we hold that the Ld. CIT(A) has rightly deleted the disallowance. Therefore we agree with Ld. CIT(A) and dismiss this Ground of revenue.
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Ground No. 6:
This Ground is merely supportive to the Ground No. 1 to 5 and therefore does not require separate adjudication. Hence the same is dismissed being infructuous
Ground No. 7:
This Ground is general in nature and does not require adjudication and the same dismissed being general in nature.
In the result, this appeal of revenue is dismissed.
Coming to the ITA No.855/Ahd/2004 for A.Y. 2000-01. The revenue has raised following grounds:
“1. The Ld. C.I.T.(A) has erred in law and on facts in directing to allow the claim of depreciation of Rs. 47,72,41,150/-. 2. The Ld. C.I.T. (A) has erred in law and on facts in directing to allow interest expenses of Rs. 15,31,17,938/-. 3. The Ld. C.I.T. (A) has erred in law and on facts in giving the benefit of Rs. 1,04,25,626/-, being modvat credit in the opening stock even though the assessee in in appeal before the I.T.A.T. against the above addition in the A.Y. 1999-2000. 4. On the facts and in the circumstances of the case, the ld. C.I.T.(A) ought to have upheld the order of the Assessing Officer. 5. It is, therefore, prayed that the order of the ld. C.I.T.(A) may be set aside and that of the Assessing Officer be restored to the above extent.” 127. The assessee filed its return of income on 29.11.2000 declaring a loss of Rs. 107,33,52,060/-. The Ld. AO completed assessment u/s 143(3) at a loss of Rs. 59,56,29,128/- after making certain additions. Against the order of Ld. AO, the assessee filed appeal to Ld. CIT(A) who allowed part-relief. Against the order of CIT(A), the revenue filed appeal to this Bench, which was registered as ITA No. 855/A/2009. The ITA was dismissed by this Bench vide order dated 13.11.2009 (Order-I) on the ground of low tax effect. However, the Hon’ble Jurisdictional High Court of Gujrat in Tax Appeal No. 962 of 2010 titled “CIT Vs. M/s Mardia Chemicals
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Ltd.”, vide judgement dated 12.07.2011 quashed the order of the ITAT in ITA No. 855/A/2009 and remanded back to this Bench for consideration on merits. In consequence thereof, this Bench re-stored the appeal and passed order on merits on 11.01.2013 (Order-II).
However, at the time of hearing, the Ld. D/R has pointed out that in a Common Judgement dated 23.09.2013 in Tax Appeal No. 735 of 2013, 2190 of 2009, 1764 of 2009 and 2164 of 2009, titled “CIT-II Vs. Official Liquidator of M/s Mardia Chemicals Ltd.”, the Hon’ble Jurisdictional High Court has quashed same Order-I and remanded back to this Bench for consideration on merits. Now, therefore, in compliance to this Judgement dated 23.09.2013 of Hon’ble High Court, the ITA No. 855/A/2009 is once again fixed for hearing and we proceed to decide the case on merits.
The assessee-company has gone into liquidation and none appeared to represent. The hearings were adjourned from time to time and notices were also sent. Finally we proceeded to decide the appeal ex-parte qua the assessee, after hearing the Ld. D/R and considering the material available on record.
Ground No. 1 – Claim of depreciation of Rs. 47,72,41,150/-:
In this Ground the revenue has claimed that the CIT(A) has wrongly directed to allow the claim of depreciation amounting to Rs. 47,72,41,150/-.
At the outset, we note that the above issue has already been adjudicated by us in ITA No. 855/A/2009 vide order dated 11-1-2013. We have noted our observations and conclusions related to this issue, in Para No. 4 and 5 of Order-II as under:
“4. Apropos to Ground No.1, facts in brief as emerged from the corresponding assessment order passed u/s. 143(3) of the IT Act dated 31.3.2003 were such that the assessee-company is manufacturing chemicals. It was noted by the AO that in the past the claim of the depreciation was rejected because the installation could not be proved by the assessee. According to AO, the WDV was disturbed, hence in view of the stand taken in earlier years the depreciation is to be worked out separately. In the result, a disallowance of Rs.47,72,41,150/- was made. When the
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matter was carried before the Ld. CIT(A), it was argued that the major portion of the disallowance of depreciation was on account of consequential effect of earlier assessment years, however, the issue of depreciation was decided in favour of assessee. The Ld. CIT(A) has considered those facts and noted that while passing the orders for A.Ys. 1997-98 to 1999-2000, it was held, quote "I have carefully considered the facts of the case, discussion made in the assessment order, the submissions and evidences given by the appellant and discussion made by the appellant during the appeal hearing. While passing the appeal orders for A.Y. 1997-98 to A.Y. 1999-2000 on identical issue, I have held that in the Fixed Assets Schedule appended to the Balance Sheet, the details of additions to the fixed assets have been given, and further, the appellant has filed Depreciation chart as per the income-tax act duly certified by the Tax Auditors alongwith the Return of Income, and therefore, in view of these two major facts, the appellant can't be penalized by taking the shelter of assessment orders for earlier orders when facts of earlier years A.Y. 97-98 to A.Y. 98-99 viz. inability to produce the vouchers for additions to the fixed assets on account of the fire accident, is entirely different during these two assessment years A.Y. 99-2000 to A.Y. 2000-01. From the year under consideration, the provisions for Tax Audit u/s.44AB were made more stringent and now the Tax Auditors are also required to certify the eligible amount of depreciation. The tax auditors have certified the eligible amount of depreciation after putting up the explanatory notes." Unquote. Finally, Ld. CIT(A) has issued certain directions to the AO to verify the details of the addition made towards fixed assets and thereupon allowed the depreciation. 5. We have heard the Ld. DR who has simply placed reliance on the order of the AO. Prima-facie the issue of disallowance of depreciation was nothing but a consequential effect of the past years. The first appellate authority had taken the cognizance of the correct position of the depreciation as emerged from the appellate orders of the past years. Thereafter, Ld. CIT(A) had restored the issue to AO to verify the correct position of the depreciation in the light of the additions made by assessee towards fixed assets so as to allow the depreciation accordingly as per law. We find no fallacy in the said directions of ld. CIT(A). In the result, this ground of the Revenue has no force, therefore dismissed.” 132. We have given a thoughtful consideration to our observations and conclusions noted above in Para 4 and 5 in ITA No. 855/A/2009 vide order dated 11-1-2013 and once again we hold the same without any modification. Accordingly, the Ground No. 1 of revenue is dismissed.
Ground No. 2 – Deduction of interest of Rs. 15,31,17,938/-:
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In this Ground the revenue has claimed that the CIT(A) has erred in giving direction to allow interest expenditure of Rs. 15,31,17,938/-.
At the outset, we note that the above issue has already been adjudicated by us in ITA No. 855/A/2009 vide order dated 11-1-2013. We have noted our observations and conclusions related to this issue, in Para No. 6 of ITA No. 855/A/2009 vide order dated 11-1-2013 Order-II as under:
“6. In respect of the ground No. 2, it was noted by the AO that interest was capitalized but claimed as Revenue expenses. The assessee had claimed the expenditure u/s 36(iii) by relying upon Hon'ble Gujarat High Court decision reported in 103 ITR 715 (Guj.). However, the assessee had suo motu disallowed the claim by invoking the provisions of section 43B of the IT Act. Although, the AO had rejected the stand of the assessee but also mentioned that no separate addition was required to be made as the claim had not passed through the books of accounts. When the matter was carried before the first appellate authority, the said issue was decided in favour of the assessee following earlier assessment years 1997-98 to 1999-2000. Ld. CIT(A) has also relied upon DCIT vs. Core Healthcare Ltd. 251 ITR 61 (Guj.). The only submission before ld. CIT(A) was that the claim of interest be directed to be allowed only on payment basis. It was duly considered by ld. CIT(A) and he had finally directed the AO to allow the said expenditure u/s. 43B in the year as and when paid. On hearing the submissions, from the side of the Revenue, we are also of the opinion that there was no fallacy in the said direction of the ld. CIT(A). We, therefore, hold that this ground of the Revenue has no force, therefore hereby dismissed.” 134.1 We have given a thoughtful consideration to our observations and conclusions noted above in Para 6 in ITA No. 855/A/2009 vide order dated 11-1- 2013 and once again we hold the same without any modification. Accordingly, the Ground No. 2 of revenue is dismissed.
Ground No. 3 – Modvat Credit of Rs. 1,04,25,626/-:
In this Ground the revenue has claimed that the CIT(A) has erred in allowing the deduction of Rs. 1,04,25,626/-, being modvat credit of the opening stock, even though the assessee is in appeal before the ITAT against the above addition in the A.Y. 1999-2000.
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At the outset, we note that the above issue has already been adjudicated by us in ITA No. 855/A/2009 vide order dated 11-1-2013. We have noted our observations and conclusions related to this issue, in Para No. 7 and 8 of Order-II as under:
“7. Apropos to Ground No.3, we have noted that ld.CIT(A) has followed an earlier appellate order and in consequent thereupon decided the issue in favour of the assessee in the following manner:- "9. The fifth Ground of Appeal is regarding the Assessing Officer's non-action of giving credit of opening balance of unutilized modvat credit of Rs.1,04,25,626/- which was disallowed during the assessment year A.Y. 1999-2000. 9.1. While passing the appeal order for the assessment year A.Y. 1999-2000, I had uphold the action of the Assessing Officer of adding the amount of Rs.1,04,25,626/- being the unutilized modvat credit, and therefore, I find merits in the claim of the appellant to reduce the opening balance of unutilized modvat credit which has been taxed last year. Following my earlier order for the A.Y. 1997-98 and to avoid the double taxation, I accordingly, direct the A.O. to reduce from the income the opening balance of unutilized modvat credit of Rs.1,04,25,626/-." 8. Under the totality of the facts and circumstances of the case, we are of the view that the position of the unutilized modvat credit ought to have been ascertained year-after-year as per the accounts of the assessee. Although we find no defect in the order of ld. CIT(A), but a minor modification is required that the figures of unutilized modvat credit were required to be verified by AO and if they are systematically reflected in the books of accounts year-after- year which were found to be the opening balance for the year under consideration, then the consequential relief should be given to the assessee by the AO. With these directions, this ground of the Revenue is party allowed.” 136.1 We have given a thoughtful consideration to our observations and conclusions noted above in Para 7 and 8 in ITA No. 855/A/2009 vide order dated 11-1-2013 and once again we hold the same without any modification. Accordingly, the Ground No. 3 of revenue is partly allowed.
Ground No. 4:
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This Ground is merely supportive to the Ground No. 1 to 3 and therefore do not require separate adjudication. Hence the same is dismissed being infructuous.
Ground No. 5:
This Ground is general in nature and does not require adjudication and the same dismissed being general in nature.
In the result, the appeal of Revenue is partly allowed.
Now coming to the appeal filed by the Revenue bearing IT(SS)A No.137/Ahd/2016 for A.Y Block Period in the case of M/s.Mardia Steel Ltd. The revenue has raised following grounds:
“1. The Ld. C.I.T.(A) has erred in directing the AO to give credit of the assessed income of Rs. 1,92,05,089/- in place of Rs. 1,00,73,437/- in respect of AY 1994-95. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. 1. It is, therefore, prayed that the order of the Ld. CIT(A) may be set aside and that of the Assessing Officer be restored to the above extent. 2. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary.” 141. This is a case of block-assessment made upon the assessee u/s 158BC of Income-tax Act, 1961 for the period 01/04/1986 to 09/01/1997 pursuant to a search conducted on 09/01/1997. The Ld. AO completed assessment of Block-Period on 23.03.1999. Being aggrieved by the order of assessment, the assessee filed appeal to Ld. CIT(A). Against the order of Ld. CIT(A), an appeal was preferred to Ahmedabad Bench of ITAT, wherein the Bench had set aside the order of Ld. CIT(A) and restored the matter back to him for deciding the issues afresh on merits. In consequence thereof, the Ld. CIT(A) passed order on 12.02.2016. Now, being aggrieved by order dated 12.02.2016, the revenue has preferred this appeal before us.
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In Ground No. 1, the revenue has claimed that the Ld. CIT(A) has erred in directing the AO to give credit of assessed income of Rs. 1,92,05,089/- in place of Rs. 1,00,73,437/- in respect of A.Y. 1994-95.
We have perused the assessment-order passed by Ld. AO. We observe that the Ld. AO has given calculation of Block-Income in Para No. 13 / Page No. 34 to 37 of the assessment-order. On Page No. 36, the Ld. AO has given working of Total Income of A.Y. 1994-95 as under:
Assessment Year: 1994-95 Total Income as per Chapter-IV Before allowing deduction under Chapter VI-A) as assessed 1,95,05,089
Add: Undisclosed income as per assessment order (as per para no. 7) 22,93,52,828 ---------------- Total Income as per Chapter-IV 24,85,57,917 ========
Thereafter on Page No. 37, while computing the amount of undisclosed income, the Ld. AO has made following working for A.Y. 1994-95: Previous Asstt. year Total Income including Returned / Assessed year undisclosed income income as on the computed u/s 158BB date of search as per (before allowing section 115BB(1) deduction under sub-clause (a) to (f) Chapter VI-A) F.Y. 93-94 1994-95 24,85,57,917 1,00,73,437
Thus, initially on Page No. 36 the Ld. AO has considered assessed income of Rs. 1,95,05,089 while computing the Total Income of Rs. 24,85,57,917/-, but later
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on Page No. 37, the Ld. AO has considered Assessed Income of Rs. 1,00,73,437/- in the last column of above table while computing undisclosed income. This is a mistake of Ld. AO, he ought to have considered Assessed Income of Rs. 1,92,05,089/- in computing undisclosed income on Page No. 37.
The Ld. CIT(A) has correctly held that the AO has wrongly given credit of the assessed income of Rs. 1,00,73,437/- in place of Rs. 1,92,05,089/-. We do not fine any mistake in the direction of Ld. CIT(A). Therefore, this Ground of revenue is dismissed.
Ground No. 2 to 4 are general in nature and do not require adjudication and the same is dismissed being general in nature.
In the result, the appeal of revenue is dismissed.
The combined results of the appeals are as follows:
Sl. ITA No(s) Asset. Appeal by Result No(s) Year(s) 1. 3437/Ahd/2002 1993-1994 Revenue Partly allowed for statistical purposes
2-4 3208 to 1997-1998 Revenue Dismissed 3210/Ahd/2003 To 1999-2000
855/Ahd/2004 2000-2001 Revenue Partly allowed
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IT(SS)A Block Period Revenue Dismissed No.137/Ahd/2016 (01.04.1986 to 09.01.1997
Order pronounced in the Court on 28/01/2022 at Ahmedabad.
Sd/- Sd/- (RAJPAL YADAV) (WASEEM AHMED) VICE PRESIDENT ACCOUNTANT MEMBER (True Copy) (True Copy) Ahmedabad; Dated 28/01/2022 Manish